US Government takes steps to secure the pharmaceutical supply chain

Based on data from FreightWatch International, 13% of all cargo thefts involved pharmaceuticals during the first quarter of this year. While the number of thefts has declined, the average loss has not, increasing from $154,000 from last year, same period, to $235,000 this year.

Counterfeit drugs are also a growing concern. According to the US Federal Drug Administration (FDA) and the National Association of Boards of Pharmacy, 1%-2% of drugs are counterfeit in the US. With more than 4bn prescriptions filled in the US each year, worth an estimated $310bn, 1% equals about 4m packages that may be counterfeit.

States have taken steps to increase the security of pharmaceuticals. For example, California’s latest attempt will go into effect in 2015. It will require all medications to have a serial number and be accompanied by electronic records detailing every instance the product changes hands. While the California requirement is a good move to secure the pharmaceutical supply chain, it is only one state. The total cost for companies within the state to implement this requirement is estimated at $3.5bn. Other states have different requirements. This has created a current situation of confusion within the industry, added costs and opportunities for thefts and counterfeit to occur between states.

As such, the US government is taking steps to establish a national track and trace program. Currently, there are two bills under consideration that differ slightly. Both bills will require companies to track drugs among supply chain partners including wholesalers, distributors and packagers. Also, the bills will require the FDA to establish a licensing program for third parties that provide outsourced logistical services to support pharmacuetical manufacturers, wholesalers and dispensers. Among the differences between the two bills is whether to require lot or unit level tracing system.

Complying with a national requirement may prove costly for those companies involved; however, the benefits should outweigh the costs by creating much needed efficiencies. In fact, many pharmaceutical companies are already investing in such IT solutions. According to UPS’s ‘Pain in the (Supply) Chain Survey’, technology investment is among the top strategies companies utilize to increase efficiencies and competitiveness. And, as noted in Ti’s brief, Pharmaceutical supply chains move towards cloud computing, September 15, 2012, pharmaceutical companies such as Pfizer and GlaxoSmithKline are already utilizing SaaS solutions to interact and collaborate with supply chain partners.

For logistics and transportation providers, additional federal regulatory requirements will likely increase logistics costs. Larger providers such as DHL and UPS should be able to handle these costs and pass much, if not all, on to their customers. However, niche providers may struggle to handle these additional costs.