The Decade of the Counterfeit-Part Two

The is the second and final installment of a two part opinion blog by Alan Clock, Senior Vice President at XStream Systems, Inc. that was first posted last January on Secure Pharma Chain. Part One was posted yesterday.

How do we as a society both domestically and globally solve this growing threat and eliminate the danger that looms as its deadly consequence to us all?

We now live in a worldwide, global economy. Trade and industry superpowers have emerged beyond the traditional European and North American developed nations. Comprehensively all industries have had enormous movement of production into underdeveloped nations, even those that have a tradition of trade riddled with fraud, counterfeiting and corruption. These countries with well know nefarious sources of supply, now find themselves as a primary producers of everyday consumer products that are in foodstuffs, household goods and medications on the retail shelves of Main Street USA.

The reality, unknown by many, is that this counterfeit phenomenon is growing and going well beyond the borders of the undeveloped world. Today, not one product, not one place, not one person is immune from the impact of counterfeit and fraudulent products. It is likely that we will continue to see this counterfeit boom continue unabated indefinitely.

How this phenomenon is happening is both complex and simple. This is a global event which adds to its complexity, but it is driven by easy money which is very straightforward to understand.

As such, some of the major factors driving the unprecedented proliferation of counterfeit products around the globe decade include:


• Global economies and worldwide supply chains. As companies become more global and procure raw materials and contract production overseas due to lower costs and expense, the supply chains become much more difficult to control and monitor. Companies lose control over their production, intellectual property and quality control. Regulatory processes and enforcement in third world countries lag behind the developed world and institutional control. Nefarious vendors can contaminate for quick profit a product by providing poor quality or adulterated raw materials prior to production. Without adequate controls manufacturers, distributors, retailers and consumers find themselves vulnerable to poor quality, contaminated or fraudulent materials. Often by the time an issue is discovered the product is well within distribution, its source difficult to pinpoint with the perpetrators long gone. Unfortunately by that time the impact of the bogus product has been borne by thousands.

• Ineffective laws and regulations. As a global economy expands, products move across multiple borders making them increasingly vulnerable and allowing for organizations to take advantage of legal loopholes, breaks in regulatory authority and the ability for law enforcement to adequately monitor movement of goods and services. Penalties for criminal activities also exacerbate the situation. A criminal organization can make more profit with less risk of being caught or with any significant legal ramifications by counterfeiting than almost any other criminal activity. Basically it is easier to counterfeit products, with much less risk and much more profit than in any other legitimate or illegitimate activity.

• Growth of the internet and unrestricted, instant access to millions of consumers. In the 21st century, counterfeit organizations can directly or indirectly market and sell their wares online, 24 hours a day in relative anonymity. These organizations can set up websites and fulfill transactions with only a few key strokes and completely camouflage their operation. By the time a regulatory body, law enforcement agency or consumer finds a fake product the marketing source or website and operation is long gone into a hazy cyber world.

• The global financial meltdown that occurred in the last half of the decade has caused many retailers and consumers to look at the price of materials, focusing less on quality and authenticity. As incomes and profits fall, so do the standards of the producer or consumer as they scramble to find the products and materials that they rely on. This is a dangerous environment where counterfeit organizations thrive. A perfect scenario for fraudulent activity occurs when members of the supply chain focus on price over cost and fraud. The criminals know that by the time their crime is discovered they have little chance of being held accountable.

• The lack of brand protection and security by members of the supply chain. Many manufacturers, distributors and retailers have been slow to realize the huge impact that counterfeit products have and could have to their businesses. Many have had and continue to show a lack of strategy in dealing with this issue, ostensibly because they have not educated themselves on the problem or they do not have the necessary solution to effectively deal with it. Regrettably until most of these organizations face the liability or brand erosion of a catastrophic event caused by fraudulent activity they simply ignore the issue altogether.

• The lack of implementation or acceptance of comprehensive solutions to combat counterfeiting. There have been scores of regulatory bodies, legislation and industry groups make attempts to implement comprehensive solutions to counterfeit activities. Most initiatives prove to be ineffective, based on their lack of acceptance, expense and their complicated approach. Functionally most of these solutions are based on a transactional approach. A transactional approach relies on the supply chain to continually interact and exchange data. This constant information exchange in real time is difficult at best and extraordinarily expensive at worst especially when you are dealing with a far reaching, global supply chain.

Additionally transactional methods only deal with the product package and not the material or product itself. Some of the largest and most egregious fraud and counterfeit events of the past several years were products that had pristine transactional pedigrees but the product on the inside of the package was adulterated or fraudulent, causing harm to thousands of end use consumers and millions in losses to the brand.

To date, most industries seem to have taken a wait-and-see approach driven by the cost of current solutions, which ultimately means that the initiatives die as the events which caused the activity loses momentum over time. The reality is that eventually business leaders within the supply chain have a “hear-no-evil, see-no-evil” attitude as it relates to this issue because they posses few answers and have little to no government or industry leadership to the mandate or guide them.

The dilemma of the next decade is how to marshal our resolve as a society globally and properly respond to the multiple factors which have driven this decade of fraudulent, adulterated and counterfeit products that have proliferated in the 21st century.

First and foremost, to win this battle, there needs to be a universal awareness of how prevalent and how dangerous this issue actually has become. Consumer’s awareness and their rejection of products that are not vetted and authenticated is critical.

Additionally, regulatory authorities across the globe need to be motivated, synchronized and resourced appropriately so as to eliminate the shadows and safe havens that allow counterfeiters to thrive.

Finally, industry and supply chains need to understand and realize the profit, loss and liability that exist if they do not deal with counterfeits head on. Each of the stakeholders of the consumer supply chain, from corporations to consumer, need to push for sophisticated solutions and eliminate this potentially deadly threat.

Vital to these three primary steps is the realization from all; manufacturer to consumer, is the understanding what this counterfeiting is currently, but what it can become if not properly addressed.

Most ominous is the potential for counterfeiting to evolve beyond the simple criminal act to becoming a massive terror threat is very real. As it stands today, millions die each year from individual criminal counterfeit acts, if done with a coordinated murderous intent; a terrorist element could comprehensively impact the health and mortality of an entire country or society.

Fortunately the solutions are at hand, today there are technologies that can be comprehensively layered to protect the various members of the supply chain, within individual channels to follow transactions, screen materials and authenticate the validity of products at each step of the sequence as it makes its way to the consumer.

One such solution is a technology known as EDXRD. This innovative technology allows the user to molecularly screen the product inside its original container without destroying or degrading the product, thus minimizing the need for Track and Trace or transactional solutions. Basically this solution adds functionality from the transactional and looking at the outside of the container to looking inside the container with Molecular Screening. Ultimately, this type of solution provides each member of the supply chain the confidence to know that their inventories safe and efficacious.

In the end, layered deployment of technology solutions, consumer awareness and a coordinated regulatory/law enforcement process will be the most effective strategy to lessen this very dangerous, criminal activity. When the criminal elements realize that there is little profit and a realistic chance that they will be held accountable for their actions, the deadly issue of counterfeit and fraudulent products will drastically decline and the Decade of the Counterfeit will become a brief historical story of how technology and public awareness save the day.

Alan Clock, Senior Vice-President of XStream Systems has over 20 years of pharmaceutical, healthcare and sales distribution experience. Mr. Clock has an impressive track record of promoting comprehensive solutions to healthcare providers, distributors, large corporate entities, group purchasing organizations, employer groups and managed care organizations. He has held senior sales executive and national account roles for major Fortune 100 healthcare industry leaders and has successfully negotiated and sold billions of dollars in multi-year pharmaceutical service, software, equipment, packaging and consulting agreements.

The Decade of the Counterfeit-Part One

This is the first installment of a two part opinion blog by Alan Clock, Senior Vice President at XStream Systems, Inc. that was posted last January on Secure Pharma Chain.

The first decade of the 21st century could carry many labels given the rise of global terrorism, a bursting housing bubble and a worldwide financial meltdown. However one very appropriate label, albeit lesser known by the masses, would be the Decade of the Counterfeit.

Although counterfeit materials and fraudulent supplies have been around for centuries, with the emergence of far reaching global supply chains and an expanding worldwide economy, the criminal activity of producing counterfeit goods have propagated and is impacting a greater number of consumers more than ever before.

In modern times counterfeit products go well beyond the conventional bogus purses and knock off apparel that we traditionally associate with this fraudulent activity. The scope and audacity of the contemporary counterfeiter goes well beyond what has traditionally been considered to be a victimless crime.

Today’s counterfeit products include every product that is used today. This runs the gamut from commercial aircraft parts to sophisticated electronics, and from consumer goods to food and life saving healthcare products. Counterfeited products include all of the goods that consumers rely upon for their safety and well being. At best, these bogus products fall short of their consumer’s expectation while at worst they threaten a population’s safety and overall health.

An insidious example of how counterfeit activity can create a deadly consequence and cause thousands to die is documented by the issue of counterfeit drugs causing drug resistant disease strains in underdeveloped countries in Africa and Asia.

With medical science producing drugs that can effectively cure or curb diseases such as tuberculosis, malaria and HIV/AIDS, unscrupulous counterfeiters are producing fake drugs with only a trace of the real drug’s active ingredient. The counterfeiters put only enough of the real ingredients in to fool rudimentary testing processes. The unfortunate side effect of these bogus treatments is that not only do they not provide any therapeutic cure, they actually create more dangerous strains of the disease that are impervious and resistant to the known drug regimens used to treat the illness.

The World Health Organization estimates that upwards of 2,000 children per day die as a result of taking counterfeits medications in Africa alone.

Well over 1 million children die in Africa and Asia die each year because of counterfeit drug medications.

A few global statistics from the World Health Organization regarding pharmaceuticals, even further energizes the debate regarding the label Decade of the Counterfeit:

• In 2010, the World Health Organization (WHO) conservatively estimates that counterfeit medications will be a $75 billion industry worldwide.

• The WHO projects growth of counterfeit medications to be over 12-16% annually, worldwide.

• The WHO Reports that globally 10% of Pharmaceuticals are counterfeit, fraudulent or adulterated.

How do we as a society both domestically and globally solve this growing threat and eliminate the danger that looms as its deadly consequence to us all?

Alan Clock, Senior Vice-President of XStream Systems has over 20 years of pharmaceutical, healthcare and sales distribution experience. Mr. Clock has an impressive track record of promoting comprehensive solutions to healthcare providers, distributors, large corporate entities, group purchasing organizations, employer groups and managed care organizations. He has held senior sales executive and national account roles for major Fortune 100 healthcare industry leaders and has successfully negotiated and sold billions of dollars in multi-year pharmaceutical service, software, equipment, packaging and consulting agreements.

View Part Two of the opinion blog tomorrow on Secure Pharma Chain.

Two Part Series: The Decade of the Counterfeit

Starting Tuesday, January 4th, Secure Pharma Chain will be re-posting a two part series of an opinion blog titled, The Decade of the Counterfeit.

The piece is authored by Alan Clock, Senior Vice President of XStream Systems a twenty five year veteran of the pharmaceutical supply chain.

Secure Pharma Chain is re-posting the series given its relevance and timeliness to the issue that the global pharmaceutical supply chain will be facing in 2011 and the coming decade.

Counterfeit Drug Return on Investment Formula

The following is a re-post of a blog from Secure Pharma Chain in November 2009 detailing the criminal's financial success formula regarding Counterfeit Pharmaceuticals.

In a recently published article the following is a quote from industry expert, Martin Van Triest, Interim Director of Rx-360, illustrates the high profitability of counterfeiting pharmaceuticals:

“If a counterfeiter invests $2,000 in faking a DVD, he may turn that into $20,000; if he invests $2,000 into faking cocaine, he may turn that into $200,000; but if he invests $2,000 into faking a pharmaceutical drug, he may turn that money into $2 million! At the same time, the punishment for getting caught counterfeiting pharmaceuticals is far less severe than for counterfeiting illegal recreational drugs such as cocaine. "

Now you know why this deadly criminal act, which threatens the health and wellness of entire populations, is growing at a rate that puts all consumers around the globe at risk.

It is incumbent on all members of the pharmaceutical supply chain and consumers to become aware of this risk and to demand that regulatory and industry standards are in place to protect inventories, packaged medications and dispensed drugs.

To learn more about solutions to fight counterfeit pharmaceuticals, visit: http://www.xstreamsystems.net/.

Drug Safety Responsibility-For Whom Does the Finger Point?

This blog posting first appeared in Secure Pharma Chain in May 2008.

This posting still remains relevant today as the issue of poor quality, fraudulent, adulterated and counterfeit medications continues to proliferate in pharmaceutical supply chains around the globe-and the regulatory ability to meet this threat remains woefully inadequate.

The recent heparin recalls have left consumers fuming and pointing fingers at those who were supposedly protecting them from harm. With a difficult past year in both tainted food and medical products – this was the last straw. In reality, most in the industry knew the FDA was woefully understaffed and unequipped to cope with the expansion of global inspections required to guarantee the safety of our food and drug supply.

Finally this week in answer to Pennsylvania Senator Arlen Spector’s request, FDA commission Andrew C. von Eschenbach asked congress for $275 million as an immediate budget submission. Increased funds will be use to increase inspections, modernize their science and staff, and upgrade their laboratory facilities.Julie Zawisza, an F.D.A. spokeswoman said “These resources will accelerate the changes required for F.D.A. to protect and promote the health of all Americans in a rapidly changing world that poses new, emerging threats to the safety of food and medical product.”

One might asked, how could we let it get to this point? How indeed! The pharmaceutical industry has a history of relying of reactive testing, specific to the particular contaminant or variance they are guarding against. However, modern day protection requires a more proactive approach – a verification of the whole and an assurance against those criminal minds that can fool testing with traces of authentic material mixed in with the altered substance.

To further this point, we must have testing down the chain as well. As the saying goes, “Test Often, and Test Late!” The closer to consumer that authenticity testing is done, the more you are sure the consumer is receiving the “True Goods”. Too often each company points to the other on whose responsibility it is too safeguard the product.Now it is the consumer who is doing the pointing and he or she is pointing at us all!

To learn more about supply chain authenticity testing, visit: http://www.xstreamsystems.net/.

Johnson & Johnson: Massive Expansion of Recall

As an update to an earlier Secure Pharma Chain Blog report, Johnson & Johnson has massively expanded a recall of their OTC medications. This is the second expansion of a recall due to a moldy smell of these particular products that are making consumers ill.

The recall now includes specific lots of Tylenol caplets, gel tabs, arthritis treatments, rapid release and extend release Tylenol as well as Motrin IB, regular and extra strength Rolaids antacids, Benadryl allergy tablets, St. Joseph aspirin and Simply Sleep caplets.

McNeil Consumer Products, a division of Johnson & Johnson, is publicly stating that the expanded recall includes product lots that could be affected by the same problems of consumers experiencing nausea and vomiting that were the reason for the original recall, even though it has not received any reports from consumers.

The latest update recall applies to Johnson & Johnson/McNeil products sold in the North America, Central and South America, the UAE and Fiji.

A full list of the recalled products is online at http://www.mcneilproductrecall.com/.

Previously Johnson & Johnson recalled some Tylenol Arthritis Caplets in November and December due to the moldy smell, which caused nausea, stomach pain, vomiting and diarrhea to some consumers.

Johnson & Johnson says the smell is caused by small amounts of a chemical associated with the treatment of wooden pallets.

This recall, based on onsite product contamination, energizes the need for material screening of products within the supply chain to protect consumers from fraud, adulteration, contamination and counterfeit products.

To learn more about onsite pharmaceutical material screening solutions, visit: www.xstreamsystems.net.

Contract Pharma: Assuring Quality in the Global Supply Chain-Measuring Risk in Sourcing

In the September 2009 issue of Contract Pharma magazine, Helena Champion the Principal Consultant with Drug Quality Assurance LLC, writes a must read article for senior to mid level pharmaceutical executives about dealing with the risk of quality assurance of pharmaceuticals in this era of globalization of the pharmaceutical supply chain.

As posted on previous stories and blogs at Secure Pharma Chain Blog, the issue of the globalization of the pharmaceutical supply chain has led to a worldwide epidemic that affects the quality of medications and a proliferation of counterfeit drugs.

XStream Systems endorses the concept that both private industry and government regulatory agencies use technology such as XStream’s XT250 to screen, authenticate and verify the contents of products within the supply chain from the point of production to the consumer. The use of a material screening process, which verifies the material inside its unit-of-sale container, enables the entire supply chain to mitigate its liability and ensures the consumer that the product is safe and efficacious.

In the article titled Assuring Quality in the Global Supply Chain-Measuring Risk in Sourcing, Ms. Champion outlines a compelling history and case for quality assurance measures along with a Supplier Risk Scoring Tool for use by a Material Supplier/Provider Combination. Ms. Champion states in the introduction that, “this article explores the risks of depending, without reliable verification, on remote suppliers to maintain the quality and safety of their supply chain and the materials we buy from them.” Although Ms. Champion primarily focuses on manufacturing, much of her article is relevant and could be applied and used by members of any supply chain-from production to dispenser.

Here are some of interesting portions pulled from Ms. Champion’s article:

• Heparin Tragedy-In early 2008 there were numerous adverse events, some fatal associated with Baxter International’s heparin parenteral products and they voluntarily recalled nearly all their heparin products in the United States…at least 80 people in the United States died from contaminated heparin products.


• Experiences in Other Industries-Experiences in other industries moving production and supply to low-cost suppliers have not been very different from the heparin experience. The Economist recently reviewed a book by Paul Midler, Poorly Made in China: An Inside Account of the Tactics Behind China’s production Game. Mr. Midler is fluent in Chinese and has consulted in China since 2001 for Western companies replacing factories in Europe and America with sub-contracting relationships in China. His Western clients were delighted with how Chinese factories could do things so well, so fast and so cheaply, but were puzzled as to how this was possible. There was reason to question the low prices-he soon found that “quality fade” was common, as Chinese factories transformed what were, in fact profitless contracts into lucrative relationships.


• Even if test are made more specific, third party testing is certainly not enough to assure the quality of pharmaceuticals and especially biologics and biopharmaceuticals.


• The tryptophan dietary supplement disaster over 20 years ago provides an example of the risks of changing a process without extensive testing to validate the new process-a manufacturer made a change to the process and did not anticipate that a very toxic impurity would result, which killed at least 37 people and permanently disabled more than 1,500 people in the United States.


• The existence of a United States affiliate or a United States Agent does not guarantee real knowledge of the supply chain or its integrity.


• Economic fraud is not new and nor is it confined to any one country or industry…In the 1990’s Flavine International, a NJ-based broker of bulk drugs, bought bulk gentamicin sulfate at low prices from unapproved sources in China. Flavine repackaged the bulk drug to resemble gentamicin sulfate manufactured by Long March Pharmaceutical...there were a number of adverse events linked to drug product made with the counterfeit gentamicin…Flavine, its owner and its vice president were fined and the owner got a two-year prison sentence.


• You are Responsible For Your Supply Chain-It has become obvious that companies in general need to know much more about their supply chains than in the past and that there are hazards in taking supplier information at face value.


• Five Steps To Achieve and Maintain Comprehensive Supplier Qualification:

Step One-Quality in Depth, A company needs to perform a comprehensive, in-depth evaluation of a supplier for a particular material. API and component manufacturers often do not allow a customer to audit their operations in detail, to protect proprietary knowledge and confidentiality, but a superficial audit is no long a viable approach.

Step Two-Use Experienced, Technically Expert Auditors to Perform On-Site in Depth Audits-They Can Change the Game

Step Three- Need to Identify and Audit the Upstream Supply Chain for Critical Materials - Audits conducted by You or Your Agent

Step Four-Trust But Verify Regularly, After initially qualifying the supplier of an API or components and demonstrating that the supplier can consistently provide material that meets specifications, drug product and device manufacturers still need to regularly check supplier compliance through reliable means.

Step Five-Management Responsibility to Understand and Mitigate Supplier Risk, Senior management should be informed and updated regularly as to the security and integrity of critical supply chains.

• The best suppliers will accept the new reality of increased transparency, and brokers and distributors who can establish and guarantee the level of quality assurance associated with more rigorous auditing and supply chain verification will be invaluable.

Written for and from the standpoint of quality assurance at the point of manufacture, this very detailed article gives a solid roadmap for executives and managers to gauge and or build a process that protects their supply chains and begin to understand the potential for catastrophic consequences economically and to the general health of a population if they do not take the issue seriously.

Not mentioned by Ms. Champion in this article is the role that technology can be deployed and used to screen and protect manufacturers, packagers, distributors, dispensers and ultimately the consumers in authenticating at each step of the supply chain the veracity of their products. By using the processes described in the article with a suite of technology it is possible for the supply chain to protect itself from the various nefarious sources that threaten it.

To read Ms. Champion’s article in full in the September 2009 issue of Contract Pharma, visit their website at: www.contractpharma.com.

To learn more about XStream Systems and its revolutionary technology that allows the pharmaceutical supply chain to verify and authenticate materials inside their sealed unit-of-sale container, visit their website at: www.xstreamsystems.net.