Falsified, substandard or counterfeit?

An industry crying out for greater supply chain due diligence

In the developed world, many people are unconcerned by the hazard of consuming counterfeit medicine. Whilst the risk has been increased to Western consumers shopping online, counterfeit drugs in the developing world have been a tremendous risk for decades. A survey of the use of malaria drugs in Malaria Journal found that over a third of the samples were counterfeit or substandard. The study estimated that over a quarter of a million malaria deaths alone could be prevented if the patients were treated with real drugs. The poorest markets are invariably the most at risk, but this risk is avoidable if exposure is limited, and regulators and companies alike investigate more sensitive areas.

A discussion focused on counterfeiting is helpful for the industry to confront, but the causes of counterfeiting must provoke a more detailed assessment of serious risks for the pharmaceutical industry, which have to date been under-examined. These hazards may lead to counterfeiting, but counterfeiting in itself is only a threat to patentholders. The prevalence of counterfeiting is due to a combination of causes related to the pharmaceutical supply chain structure which pose an existential threat to the sustainability of the industry.

What is the official definition for medicine as counterfeit? According to the World Health Organization (WHO) definition, a counterfeit medicine is "a medicine, which is deliberately and fraudulently mislabelled with respect to identity and/or source. Counterfeiting can apply to both branded and generic products and counterfeit products may include products with the correct ingredients or with the wrong ingredients, without active ingredients, with insufficient ingredients or with fake packaging".

Chinese consumers see a high price of legitimate medicine. Some consumers see a difficult regulatory environment as the cause.

How are counterfeit drugs monitored?

The WHO has established since 2005 the Rapid Alert System, a communications network designed to alert member countries and ‘relevant partner organizations’ about cases. However, it is likely to be superseded by RFID [Radio-frequency identification] enabled systems, as it involves using an electronic reporting form to be sent to the secretariat, whereupon it is disseminated to all the members of the RAS. Confirmed cases are incorporated into the WHO database, but in practice this is little more than a document hub with an email alert system. Of course, the work involved in testing and examining adverse reactions from medical products is hugely laudable and necessary, but the system is clearly crying out for more advanced technology.

The EU Falsified Medicine Directive ensures that drug companies prove that their ingredients are pure, regardless of where they are produced. The FMD is due to be implemented from 09 Feb 2019.

Opposition to regulation from the industry

Thought leadership in the pharmaceutical industry indicates some opposition to the trend for increasing regulation from Brussels. According to John D’Arcy, managing director of Numark, a chain of independent pharmacies in the UK:

“The EU medicines scanning law convinced me we need Brexit”...“the latest legal straitjacket emanating from the EU”...“the largest of sledgehammers to crack a nut” “While counterfeits do exist, the extent of any problem appears to be greatly exaggerated.” “With only 18 months to go, pharmacy is nowhere near an understanding of how it will be able to fulfil its obligations under the directive. And don’t be fooled into thinking that [our] exit from Europe will avoid our having to implement its requirements.”

His reasons? “no supplier for the barcode scanning system”, “split pack dispensing”, “monitored dosage system trays and compliance packs”, “10-day period when decommissioning can be reversed”, and of course “health spending is out of control”. Most of these appear to be industry responsibilities - of course the regulator has set the gauntlet.

“FMD is way out of all proportion to the problem it seeks to fix. As such, it represents a luxury we can ill afford.”

Drug manufacturers in India are famously resistant to increasing regulation, and have felt themselves to be increasingly demonized since the Ranbaxy scandal. Satish Reddy, president of the Indian Pharmaceutical Alliance, was quoted by the New York Times as believing Indian drug manufacturers to be ‘better than the FDA’:

“More rigorous enforcement is needed, for sure, but this impression that India is overrun with counterfeits is unjustified”
Satish Reddy, president of the Indian Pharmaceutical Alliance.

However, manufacturing companies in India are demonstrably employing techniques to fudge inspections. They are adding chemicals to make it harder to spot contamination of their products - contaminating evidence of contamination. From 2016, every single FDA investigation conducted in India has involved the office of the Indian regulator, the CDSCO. There are, at last count, 45 citations by FDA for errors emanating from Indian facilities in the last three years.

Global pharmaceutical companies cannot rely on regulators in these jurisdictions to conduct their inspections for them.

Causes of counterfeiting / falsification

  • Generic Drug User Fee Amendments, which only require inspections of foreign and domestic drugs once every two years.
  • Selling fake drugs or toxic food has accelerated in recent years.

The FDA has guidelines which describe the authorization to pharmacists to ‘mix’ medications only in response to a valid prescription. Illegal compounding involves the mass manufacturing of drugs under the guise of compounding. Widespread counterfeit drugs and false advertising have been problematic for Chinese regulators for decades.

  • A regulatory weakness in China is the distinction between pharmaceutical and chemical companies.
  • The pharmaceutical companies are regulated by the SFDA. The chemical companies, making everything from sweeteners to solvents, are not*. Yet chemical companies produce huge volumes of drug ingredients. This is a loophole open to exploitation: by describing the products as chemicals instead of* APIs [active pharmaceutical ingredients].

China’s export market in these products is worth $22 billion, according to the China Chamber of Commerce for Import and Export of Medicine. Reuters produced a special report which provided more detail on the problems faced by regulators, such as an inspection log which spanned eight years with perfect record-keeping, but found the handwriting to be the same for all of the years. There was little evidence that the product was made in the aforementioned factory: there were no pipes allowing steam or waste gases.

Key risk indicators

  • Any API with a potentially lucrative return. It could very easily be at risk if it could be made more cheaply by an unregulated company.

”It is easier to follow Chinese counterfeits in markets around the world than it is from China, where private investigators are often not welcome.” - Roger Bate, American Enterprise Institute

  • Trace substandard APIs. An API made by an unregulated chemical company would cost less. 
  • CPhI - an international pharmaceutical fair - many traders go there looking for API suppliers weighted on price alone.

Are consumers bearing the brunt of the risk?

A common trend in analysis of the problem has been to blame the rise of online drug stores for the proliferation of fake drugs. Whilst this is a growing market, a tendency to scapegoat the dark web ignores the prevalence of counterfeit materials in the ‘legitimate’ supply chain. The biggest risk for consumers and companies alike comes from substandard medicines from legal producers, not fakes made by criminals operating outside the supply chain. Medscape, funded by WebMD recently posted an essentially fraudulent piece of research claiming that the World Health Organization has assessed the counterfeit market as being worth $431 billion - misleading, because no-one has ever commissioned such a study. All this serves to abdicate pharmaceutical manufacturers from responsibility, which serves no-one, and direct the regulators to work merely to protect their patents. The WHO recognizes this issue, and has therefore even taken steps to remove the word ‘counterfeit’ from its own lexicon, as it recognizes that the WHO’s job is not to protect patents but patients.

President Trump is, most ironically considering his Made in America campaign, encouraging consumers to access medicine from overseas to lower drug prices. The American Enterprise Institute has published research that indicates the level of substandard medicine to be roughly equivalent between credentialed and non-credentialed sites. In the sample, they did not find any counterfeit medicine on non-credentialed sites. Homegrown products will not solve the problem, as their ingredients will continued to be manufactured at the same sites, presenting the same hazards.

The absence of a full assessment from the FDA to demonstrate the presence of counterfeit ingredients is the subject of much scrutiny. The latest GAO report demonstrates improvements in the FDA’s oversight of manufacturing sites selling medicines in the US - however, that doesn’t extend into chemical companies, which is where much of the problem exists.

A fuller assessment conducted by the FDA is an inevitability. For large pharmaceuticals, a fallout from a contaminated result could be fatal; far better to investigate and consider the ownership of suppliers in their own chain now beforehand.

Whose supervision is superior?
Despite the majority of the pharmaceutical industry and EU regulators alike blaming China, there are some important points of comparison regarding the efficacy of regulation in each jurisdiction:

China EU
Inspections systematically planned every 5 years  Most API plants supplying to EU patients are never inspected
Certification depends on successful inspection  Certificates are granted without inspection 
Uncertified APIs are illegal  Uncertified APIs can be used - European users of Chinese APIs don’t event ask whether their suppliers are registered with the SFDA! 

Key risk flag:

“Our own data shows that American and European pharmaceutical companies are misinformed about the identity of the manufacturing site of 39% of the drug substances they purchase from China.”
-Philippe Andre Qualiau of Pharmaceutical Auditing Co. Ltd, Tianjin, China, quoted in Phake

The public, law enforcement and legislation are focusing erroneously on Falsified drug products. Mostly they reach patients via the illegal supply chain. It has a high profile mostly because it involves patented medicines and billions in losses to the patent-holders.

However, the far bigger problem is falsified APIs which enter the legal supply chain - with undetected toxicity until the patients are affected. If the toxicity is long-term, it is very likely to be undetected. The financial loss to the overall industry is far lower as a result, however the financial benefit to criminals is very high - leading it to proliferate. Only a small number of the deaths are documented - the unaccounted for number is far higher.

Case Studies

Heparin adulteration
Hundreds of patients in the U.S. and other countries suffered severe allergic reactions to Chinese heparin that had been adulterated with an unapproved additive. Patients experienced difficulty breathing, nausea, vomiting, excessive sweating and rapidly falling blood pressure that in some cases led to life-threatening shock. 81 deaths were linked in the US alone, with 785 serious injuries associated were with the drug’s use.

The investigation revealed the contaminant to be an over-sulfated derivative of a closely-related substance, obtained from mammal and fish cartilage. As it was not a naturally occurring molecule and costs a fraction of the true starting material, whilst mimicking the properties of heparin, the counterfeit was clearly intentional. The true ingredient was cut from 60% - 2% with the counterfeit.

The blame was placed on a shortage of suitable pigs in China. The contaminated Heparin was found in more than 11 countries. But one batch of an API can reach hundreds of thousands of patients.

False baby medicine kills in Nigeria
Also in 2008, 84 children were killed in Nigeria as a result of a medicine called ‘My Pikin Baby Teething Mixture’. The syrup was counterfeited, using a cheaper compound that was identical in look, smell and taste. The replacement was an industrial solvent, which attacks the central nervous system, kidneys and liver.

The litigation has been drawn-out, and there continues to be severe dispute as to whether the accused received the appropriate sentencing.

Anti-hypertension tragedy, Lahore
In January 2012, 100 patients at the Punjab Institute of Cardiology in Lahore died as a result of counterfeit antihypertensive medicines, which sent the patients into an adverse reaction by depositing itself in the bone marrow and ending the body’s resistance.

  • The license in one of the three pharmaceutical laboratories which supplied the contaminated drugs had expired for over a year.
  • The company continued to manufacture the drugs in bulk.
  • The drugs were supplied to government hospitals and open markets.

    One of the accused firms in question are back in the courts, currently accused of embezzlement, according to sources in Pakistan.

Tests performed by the MHRA [Medicines & Healthcare Products Regulatory Agency] in the UK indicated that one of the 5 suspected drugs, Isotab, was contaminated. The contaminated drug instead contained an ingredient used to treat malaria, which proved to be toxic. There were also other substandard medicines involved in the case.

Using Arachnys Investigator, I was able to find an article citing a whistleblower citing one of the suspected manufacturers of contaminated medicine in the Lahore example. The article, dated May 8, 2010, directly references a primary source as listing ZAFA PHARMACEUTICALS, one of the entities tested by the MHRA in the aforementioned crisis, as a supplier of drugs with counterfeited ingredients:

However, she was surprised that Pims was purchasing drugs from some companies whose names she had forwarded to the health ministry for producing low quality drugs. She had forwarded these names when she was a member of the committee. “Certain pharmaceutical companies had their licences cancelled by the health ministry because they were manufacturing low-quality drugs. However, medicines produced by them are still available at Pims,” the doctor told The Express Tribune.

“These companies included Venus Pharma, Lahore, Genera Pharma, Islamabad, Zafa Pharmaceuticals, Karachi, Jawa Pharmaceuticals, Lahore and Bloom Pharmaceuticals, Islamabad,” she added. According to the audit report, the same medicines are being sold by other companies at lower prices. These medicines have the same ingredients and quality. They have been tested and approved by the health ministry. Dr Nargis said: “The administration tried to put a stop to the sale of spurious drugs at Pims but these attempts have been unsuccessful.”

Not only this, but the very same article is referring specifically to hypertensive medicine for heart failure - the very same medicine involved in the Lahore issue, and a major red flag. The official report mentions as a recommendation the urgent need to adopt tracking methods along the lines of white collar crime in addition to traditional forms of inspection: 

Who benefits from this scenario?

Chemical companies

- They do not need to meet Pharma laws. - Same applies for an API exported out of the most of EU

Repeat offenders

- It pays to cheat - Non compliance is a competitive advantage - Cheating is profitable


- Tragedies are dependent on middlemen - Obscuring traceability is key to business. - The businesses simply move.

Dossier companies

- One of the traders involved in the supply of diethylene glycol that causes 88 Children to die in Haiti is the provider of the registration dossiers that amount to a large proportion of the generic sales in at least one EU country.

Broker firms who mislabel or misrepresent products Proactive traders

- Specialized traders helping non-compliant firms writing up DMGs and becoming instantly inspection-ready.
- Over the long run these plants have a higher than average frequency of warning letters.

Are these issues limited to China and India? No. In a study of the transnational market for illicit pharmaceuticals, the UK was highlighted as having particular vulnerabilities. Like much of Europe, the UK is a transit zone between Asian producers and consumers in the US. However, it is also ‘an end-user market’ - due to the greater price of medicine, and endures much higher levels of consumption compared to the rest of Europe. Products appear to enter the UK via less regulated borders. Studies indicate that a large proportion of illicit medicines enter the UK supply chain via India or Pakistan, but opinions differ.

“Some countries simply happen to have the most reported incidents of illicit medicines, whilst other countries lack the political will or resources to tackle the problem and thus do not produce statistics” - Alexandra Hall, Fake Meds Online

Other key risks

Western regulators tend to inspect on proximity not risk.

  • Agencies in Member States still focus on inspections within borders.
  • FDA performs regular surveillance inspections in the US, but rarely anything more than pre-approval inspections abroad.

Counterfeiters exploit free trade zones to hide a drugs provenance; to make, market or relabel adulterated products. Dubai, for example, is attractive to counterfeiters, because of its location, and the fact that a huge volume of goods move through its free trade areas. In 2006, customs officials seized 846 pounds of pharmaceuticals arrived from the UAE to be shipped to the Bahamas. Thousands of pills targeting high blood pressure, high cholesterol, osteoporosis and acid reflux had been counterfeited.

“It’s not just the UAE trade zones that are a problem, but free trade zones around the world.”
- A senior investigator for Pfizer, Steve Allen

The UAE is aware of the problem and has formed bodies which appear to take an active role in combatting the marketing of counterfeit medicinal products. UAE Ministry of Health and Prevention (MOHAP) held the "Second Emirates International Conference on Combating Medicinal Products Counterfeiting”. However, the conference was notable for its reliance on serialization as the primary method to prevent the illicit trade, rather than investigation, regulation and enforcement. Customs authorities in Dubai have had some success - they recently seized a shipment from Mauritius containing 556,000 imitations of Plavix [used to prevent blood clots]. However, whilst enforcement at customs is most welcome, one has to wonder what sort of progress is being made to tackle the problem at source.

Roger Bate, a fellow at the American Enterprise Institute, has conducted research on the counterfeit medicine trade for years. In his recent book Phake, he elaborates on the common findings in his investigation of the counterfeiting industry of China:

  • ‘Shoddy’ chemical factories are entirely legal, and are producing enormous quantities of chemicals, tons and tons each week, much of which finds its way into Western medicines.
  • Other operations make over one million pills or 100,000 treatments every single day.
    • Some of the factories are owned by companies selling APIs or finished products to the ‘legitimate supply chain’.
    • Some are approved chemical producers that operate to poorly enforced standards and are not registered as pharmaceutical companies in China.
    • Others are ‘entirely bogus companies, not registered for any trade’. Cheap amongst their tactics, which appear to be predetermined, is to establish brands which they then ‘cannibalize’ by selling inferior versions of them, exploiting the ‘high segmented’ illegal markets.

“These operations are huge. International orders come from various parts of the world, most often from Chinese operators at hubs in India, East Africa, the Middle East and southern Europe. Cargo containers leave busy Chinese ports full of millions of treatments of varying quality”
- Roger Bate, Phake

Critically, these companies evade inspection using ‘convoluted company structures and operations’. These are deliberately obfuscatory, ensuring that areas of the supply chain which are illicit are difficult to track and difficult to trace. The separation of packaging arrangements from production makes it very easy to mix legitimate products with substandard production. Cross-ownership is ‘layered’ - in order to ensure that no single state authority has complete oversight or visibility.

Inspection can also be highly dangerous. Bate interviews an investigator who conducted grassroots investigations of drugstores and hospitals, and was attacked by four men he believes were hired by hospital authorities to prevent his exposure of their counterfeit dealings. Unlike investigators in Nigeria, he was awarded no protection, and he expects jail-time. ‘The politically connected always seem to escape’. China has only had a functioning state drug administration for a decade - the SFDA was set up in 1998 to unify and consolidate oversight to 31 provincial drug agencies, 2,321 county agencies and 339 municipal departments.

The ability to map, track down and understand ownership structures is clearly an under-explored area for pharmaceutical compliance.

A combination of open-source investigation, paired with the global local language information and intelligent search tools such as Investigator are likely to be effective, particularly in areas where inspection is ineffective.

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