With an estimated share of ten percent of the global market for medicinal products,2 sales of counterfeit3 drugs could reach more than $75 billion globally in 2010, according to a study published by the World Health Organisation (WHO)4. Weak national and international legislation, the high profitability and low risk of manufacturing fake medicines, the development of the Internet and wider access to technology have contributed to the rapid growth of counterfeiting in the last few years.

While many counterfeit medicines circulate in developing countries, where they hamper treatment of diseases such as malaria, tuberculosis or AIDS, it is far from being just a developing country problem: a WHO survey found that 40 percent of counterfeit medicine cases occurred in industrialised countries.5 And European regulatory authorities, such as the UK’s MHRA, are taking the issue very seriously,6 with the MHRA holding a major conference later this year on how to tackle counterfeit medicines, something the MHRA describes as a “major growing world problem.”7

So, the fight against counterfeiting is much more than merely an intellectual property issue: It is a major public health and safety problem and should be treated as such. In addition to its obvious dangers for patients, it affects a wide range of stakeholders, from pharmacists and pharmaceutical companies to governments, which suffer a loss of tax revenue and increased reimbursement costs owing to the spread of counterfeiting.

An integrated approach to tackling the problems caused by counterfeit medicines is therefore essential. In Europe, the tracking and tracing of pharmaceutical products will be an important element of the overall strategy, which would also include other measures, such as making the production and sale of counterfeit drugs a criminal offence. A proposal for a directive on criminal measures aimed at ensuring the enforcement of intellectual property rights has been published by the Commission in 20058 but has not yet been adopted9. A reliable European system for tracking and tracing medicines would not only help to detect counterfeit medicines, but would also allow better control of the supply chain and more effective identification of products if recalls became necessary, and would help to overcome prescribing inaccuracy. If developed in coordination with the national social security authorities, it would also contribute to improving the efficiency of reimbursement systems.

This article begins by giving an overview of developments in the US regarding tracking and tracing. It then explains the current initiatives in Europe and discusses possible implications for pharmaceutical companies and their impact on the internal market. The possible legal basis for harmonising track-and-trace systems in Europe is then analysed, followed by some concluding remarks.

Developments in the US

In 2004, the US Food and Drug Administration (FDA) adopted a first report on “Combating Counterfeit Drugs,”10 in which it recognised the importance and potential of electronic track-and-trace technology to make the drug supply safer. The FDA concluded that RFID11 should become the standard track-and-trace technology in the US by the end of 2007. RFID is a technology allowing automatic identification and data capture by using radio frequencies. A unique identifier as well as additional information is attached to any object using a microchip. This information can then be read through a wireless device. In order to implement such a system, common industry standards and IT infrastructure had to be established. The initial timeline has proven to be too optimistic and the FDA decided to allow stakeholders more time to implement RFID technology. The new RFID system will be implemented under the Prescription Drug Marketing Act of 1987, which requires distributors of pharmaceutical products to provide a “pedigree” for each product throughout the supply chain.

Although RFID is favoured both by the FDA and the US pharmaceutical industry, several issues remain unresolved, in particular, its cost and the protection of patients’ privacy. Another problem lies in the fact that, in the United States, some pharmaceutical products are subdivided into smaller containers by pharmacists. In these cases, RFID or a bar code system would not permit a full control of the product down to the patient. On the contrary, in Europe, medicines are, in most cases, delivered to the patient in a unit-of-use pack, thus allowing a full control of the supply chain.

At state level, initiatives have been taken, in particular, by California12 and Florida13, to implement the RFID system faster than at federal level. In California, new state legislation requires pharmaceutical companies to have a “pedigree” system to identify each individual product distributed within the state, allowing track-and-trace from the manufacturer to the patient. Other stakeholders in the supply chain are required to update the information on these “pedigrees” upon each change of ownership. Companies are expected to start using RFID technology by the end of 2007. In Florida, the new Drug and Cosmetic Act requires similar tracking of pharmaceutical products since July 1, 2006, but most companies are not yet ready to attach RFID tags to drug packaging, in particular, because they are waiting for a maturation of technical standards.

The fight against counterfeit medicines is included in a broader series of measures. In parallel to its initiative on the traceability of medicines, the US government also announced new legislation to punish counterfeiters with sanctions up to life imprisonment in the worst cases of patient suffering.

Initiatives in Europe

On September 7, 2006, the European Parliament adopted a resolution on counterfeiting of medicinal products which called on Europe to “equip itself as a matter of urgency with the means to combat effectively illicit practices in the area of piracy and the counterfeiting of medicines.” Following this resolution, a symposium on “Putting an end to drug counterfeiting” was organised in May 2007 by the Rapporteur for most pharmaceutical issues in the European Parliament, Françoise Grossetête MEP. European Commission officials, senior members of the European Parliament and representatives of the pharmaceutical industry all agreed on the need to act quickly to tackle counterfeiting, both in the EU and worldwide.

The European Commission will release two reports on the issue at the beginning of 2008, both part of the Commission’s Consultation on Distribution Channels: One will focus on counterfeit medicines and medical devices, and the other on the safety of medicines in parallel trade. These studies will analyse the current situation and consider how to address possible gaps in regulatory requirements. They will be followed by an impact assessment of the measures proposed by the Commission. The study on counterfeit medicines launched by the DG Enterprise and Industry will also address track- and-trace aspects of the issue, including RFID.

The Commission has already conducted a public consultation on RFID in 2006 and issued a communication on March 15, 2007, entitled “An effective, safe, secure and privacy-preserving approach to RFID.”14 Both the Commission and the pharmaceutical industry consider that this technology has great potential to increase the quality of care and patient safety and to improve both compliance with EU law and logistics in the supply chain. The consultation concludes that the use of RFID technology in hospitals and healthcare should be explored.

In July 2007, the Commission ordered a more specific “Study on the requirements and options for actions in RFID in healthcare,” which aims to improve understanding of the potential risks of using RFID and its potential benefits for improving the delivery of pharmaceuticals in the EU. Based on this study, the Commission will make new proposals for large-scale, effective and secure implementation of RFID in EU healthcare systems. The EU is already investing in RFID through research projects co-funded by the Commission (e.g., the BRIDGE project).

At the May 2007 Symposium in the European Parliament, John BOWIS MEP recognised the need for “a pan-European track-and-trace barcode system.” Most decision makers involved in the issue consider that track-and-trace should be seen as part of an integrated approach to fighting counterfeit medicines, which should also include better access to medicines in poor countries, adoption of criminal penalties15, and a possible ban or restriction on repackaging by parallel traders. In addition, the introduction of strict liability for counterfeit products for all participants in the increasingly complicated European distribution system (parallel traders, repackagers, pharmacists, etc.) would set the right incentives to minimise the chances of counterfeit products entering the supply chain.

There have recently been several pilot projects at the national level in Belgium, Italy, France and Greece. These projects highlight the increasing interest in the identification, authentication, tracking and tracing of pharmaceutical products, which is good news for patients. However, these initiatives may be counter-productive if efforts are not coordinated EU-wide, because the various systems only offer limited national solutions to different problems (reimbursement fraud, safety), and their technological solutions also differ. The Commission (which favours RFID) and the industry (which favours the 2D Matrix Bar Code as a solution in the short- and medium-term, see below) are also considering different options, so it is now important to create a harmonised European system rapidly, in order to keep the costs and complexity of implementing such a system to the minimum.

The European pharmaceutical industry acknowledges that RFID is one of the best options for securing the healthcare supply chain, but considers the technology not mature enough and still too costly to be implemented at this stage. However, the European Federation of Pharmaceutical Industries and Associations (EFPIA) is convinced of the need to create a single system for the identification and coding of pharmaceutical products throughout Europe, and has therefore launched an initiative for a 2D Data Matrix Bar Code system16. Under this system, four items of data would be encoded into a matrix at individual secondary pack level: A code which identifies the manufacturer with its products, such as the GTIN (Global Trade Identification Number), a product-unique random serial number for each products pack, the batch/lot number and the product expiry date. These data would also be saved in a database system which could then be used by the main stakeholders involved in the pharmaceutical product supply chain: Packaging by the manufacturer, verification, dispensing by the pharmacist, reimbursement by national health authorities, and monitoring and pharmaco-vigilance by the EMEA and national agencies. This system would also be very useful in the event of product recall.

Implications for Pharmaceutical Companies and the Single Market

Parallel trade, which is the legally permitted practice whereby drugs are imported from countries where prices are lower for resale in higher-price countries, has played a significant role in the growth of counterfeiting. The legitimate parallel trade sector in the EU leads to the repackaging of over 140 million medicine packs, which can travel through as many as 20 to 30 pairs of hands before finally reaching the patient. The lack of security safeguards on repackaged packs can lead to problems in the traceability of batches, or a loss of reactivity in the case of product recalls. It also facilitates the entry on the market of counterfeit products, as counterfeiters do not need to copy the original manufacturer’s packaging, but can instead copy the pack used by parallel traders post-repackaging, which is often easier to copy as it has fewer security features. Parallel trade is one of the most common infiltration point for counterfeit products in the legitimate supply chain (see recent cases of counterfeit Zyprexa17 and counterfeit Casodex18 in the UK).

One option would be for EU policy makers to tackle this problem by means of a ban or restriction on repackaging. Parallel trade in medicines can legitimately be restricted if the restrictions are justified on grounds related to the protection of the health and life of humans. One rule that is being contemplated is requiring the parallel traders to use the same high quality of packaging as the original manufacturer of the drug, or face a ban on acting as parallel traders. Another option is the introduction of no-fault liability for counterfeit products for all persons handling the medicinal products in the distribution chain. Currently, the manufacturers’ liability is not sufficiently matched by similar provisions for the other supply-chain participants, although pharmacists and wholesalers—not manufacturers—have a much higher degree of control. And it is the pharmacists and the wholesalers who are the persons who are best placed to recognize and remove counterfeits from the distribution chain (cheapest cost-avoiders). Thus, a strict liability for pharmacists would ensure that pharmacists buy products only from reputable wholesalers with strong control mechanisms.

In addition to such measures, it would also be necessary to redefine distribution practices and tighten the supply chain against the risks of penetration of counterfeit drugs from outside. A Europe-wide system of tracking and tracing of pharmaceutical products would be a key element of this strategy. At present, there are 27 different systems in the EU and a clear lack of coordination between Member States.

Possible Legal Basis for Harmonising Systems in Europe

The implementation of a European system for the identification and coding of medicines would entail harmonising national identification systems. A legal basis for a European track-and-trace system already exists. It can be found in Directive 2001/83/EC, the community code relating to medicinal products for human use,19 which allows Member States to require specific forms of labelling for identification and authentication purposes. Article 57 of Directive 2001/83 reads: “Notwithstanding Article 60, Member States may require the use of certain forms of labelling of the medicinal products making it possible to ascertain: The price of the medicinal product; the reimbursement conditions of social security organisations; the legal status for supply to the patient, in accordance with Title VI; identification and authenticity.”20 A system which would enable pharmaceutical companies, pharmacists, pharmaceutical agencies and national reimbursement authorities to ensure improved safety for patients through the use of a barcode system clearly falls within the last category listed in this article.

Moreover, Article 65 of the directive provides for the possibility for the Commission to coordinate Member States’ efforts in this matter by drawing up guidelines: “In consultation with the Member States and the parties concerned, the Commission shall draw up and publish detailed guidance concerning in particular...the methods for the identification and authentication of medicinal products...harmonised provisions for the implementation of Article 57.” So, the Commission could prescribe the technical specifications of a European system of tracing and tracking of medicines under this article, as well as a timeline for implementing it.

The Commission needs to act quickly and efficiently in face of the risks and implications for the single market if there are soon five to ten different national track-and-trace systems. This would completely undermine the single market in pharmaceuticals. The European Medicines Agency (EMEA) might then play a leading role in the implementation of a European coordinated effort to adopt common technological standards.

There are also strong arguments for coordination between the US and the EU approaches. Having two completely different standards for the tracking and tracing for the two biggest markets will pose considerable logistical problems and would also impose a considerable financial burden on all parts of the distribution chain. Having incompatible systems would also mean that the opportunity to create a global system of tracking and tracing of pharmaceutical products to fight counterfeiting would be missed. A harmonised system could also help improve the efficacy of worldwide initiatives such as the Rapid Alert System of the WHO21.


Counterfeiting is a major problem in the global healthcare system. It increasingly affects the developed world as well as the developing world. It is not simply an intellectual property problem. Patients’ health across the globe is threatened.

Tracking and tracing of pharmaceutical products is a key element in an effective solution to the problem of counterfeit medicines. Europe-wide action will be needed to create an efficient and workable system, which will need to be backed up with parallel initiatives, such as increased criminal enforcement and penalties, and stricter rules on repackaging.

There is already an established legal basis which would permit an EU-wide solution. It is now up to industry, governments and the European Institutions to use these powers and put in place an effective track-and-trace system.

This article was published in slightly different form in the October 2007 issue of Pharmaceutical Law Insight.