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Combating the counterfeiting menace
Avi Chaudhuri | Thursday, November 25, 2010, 08:00 Hrs  [IST]

The existence of counterfeit drugs represents a worldwide menace. For a number of reasons, a great deal of attention has been focused on the pharmaceutical marketplace in emerging and developing nations. It is unquestionably true that there remains a persistent problem with counterfeit drugs in this marketplace. There are differing accounts of the actual magnitude of this problem - from a high-end figure of 30 per cent according to the World Health Organization to a contrasting figure of 0.3 per cent according to a recent study in India. There are some pharmaceutical executives who are of the belief that even a minimal presence of counterfeit drugs represents a major problem because of the impact it has on a victim who had innocently purchased the drug on a faithful belief in its authenticity. This problem has its gravest impact on those drugs that have life-saving functions, such as antibiotics, anti-oncogenics, and immunosuppressants, among others. The goal of this document is to assemble current information on technological solutions that are available to pharmaceutical companies in vulnerable markets and assist them in adopting a sound strategy for protecting their brands through effective application. This manuscript represents a highly abridged version of a more detailed manual written by the author and published by the Confederation of Indian Industry (CII) in 2008. This part provides an appraisal of the key qualities to look for in an anti-counterfeiting technology.

Choosing the right technology - The five golden qualities

When evaluating anti-counterfeiting technologies, two questions generally remain foremost in the minds of corporate executives - 'will it work?' and 'will it be worth the investment?'. These questions are particularly germane in view of disappointing results that some companies have experienced in their rush to adopt various methods to protect their brands, only to see that astute counterfeiters were able to defeat their efforts in short order. The key issue therefore is not simply to adopt a technology, but to adopt the right technology.

The application of an anti-counterfeiting solution can indeed provide excellent protective measures and significantly reduce (and even defeat) the counterfeiting problem if the brand owner adopts three fundamental strategies. First, the solution must be thoughtfully chosen; second it must be effectively promoted in the marketplace; and third, the technology must be properly implemented. These three core strategies are reviewed next in reverse order.

First, in order for any technology to succeed, it must be implemented at the most elemental level - i.e., the very product that is sold in the marketplace. Pharmaceutical companies must therefore focus their efforts only on those solutions that empower product-level authentication. The greatest success in terms of interdiction and deterrence against fraud can only occur when a brand owner's products are clearly distinguishable from counterfeits and knock-offs. The role of the technology solution should be to greatly facilitate that distinction, which in turn provides a clear asset in terms of an anti-counterfeiting impact.

The second fundamental strategy requires the company to communicate its adoption of an anti-counterfeiting solution to the marketplace. Although this should seem obvious, many brand owners are loath to admit that a counterfeiting problem had afflicted their products in the first place. This dilemma can be effectively handled by an approach that portrays a brand protection solution, not necessarily in terms of an anti-counterfeiting objective, but rather in terms of brand evolution that is in the best interests of protecting the health and safety of their consumers. This positive approach, which can be undertaken by the sales team directly to the clinicians and retailers, makes for a far more effective message. The brand owner will be remiss if it invests in an anti-counterfeiting technology and then fails to properly promote it in the marketplace.

The third and final strategy is elegantly simple - choose the right technology! Some companies in the past have deployed a technology solution that did not effectively target the actual problem and therefore ended up being unsuccessful, much to the consternation of senior management. For example, certain anti-counterfeiting technologies are inherently expensive and yet have a short half-life, because the counterfeiter can easily duplicate them. An effective solution for protecting branded assets can only be arrived at by identifying a technology that has considerable robustness and longevity, and yet requires a modest and acceptable level of investment.

So, how exactly does a brand owner confidently identify a brand protection technology that will have a high probability of success in passing the two salient questions posed at the outset - will it work and will it be worth the investment? There are five Golden Qualities that are critically important in any effective anti-counterfeiting solution. These are discussed in the remainder of this section. The brand owner must ensure that a chosen technology displays as many of these as possible.

Consumer empowerment
A fundamental requirement for brand owners is to adopt a technology that can be applied at the individual product or item level. This does not, however, mean that consumers will automatically be capable of using that technology to distinguish a genuine from a fake product. There are various brand protection solutions that are indeed applied at the product level, but which are of use only to security specialists and therefore impenetrable to the ordinary consumer. The first Golden Quality that must be assiduously sought by the brand owner is a solution that empowers their customers to authenticate the medicine at the very moment when it is most important - the point of sale at the retail level.

Consumer empowerment represents an absolutely critical requirement for several reasons. First, any anti-counterfeiting technology that is meant to reassure consumers misses its key objective if the customer is unable to use that very technology. The twin aspects of reassurance in this regard pertain to product safety and purchase value, both of which are necessary for retaining brand loyalty, growth, and confidence. Second, a strong case can be made in terms of obtaining a marketing edge when consumers are empowered with verification ability. The technology can be publicly portrayed in an extremely positive manner because it reinforces an important psychological aspect of brand consumerism - giving power to the masses. Third, consumer verification at the time of purchase serves as the most potent answer to public calls for greater corporate responsibility and provides the best response to that delicate question directed at the pharmaceutical company - 'what did you do to protect me?'. The anti-counterfeiting technology in this case would not only provide robust brand protection but also shield the owner from any culpability in those cases where a fake product was purchased by a consumer who opted to bypass verification. Fourth, consumer empowerment serves as a strong deterrent to wayward retailers who are themselves part of the counterfeiting loop. The identification of fake goods at the point of sale would provide an entirely new dilemma and make guilty retailers aware that they can be easily identified as perpetrators of criminal activity, while rewarding honest ones for diligently selling authentic medicines. And finally, consumer empowerment marshals a very large field-force of independent invigilators to combat the counterfeiting problem. The brand owner benefits by enlisting a truly incredible resource that is extremely large in terms of sheer numbers, broad in terms of geographic scope, and which requires no additional expenditure, as would be the case, for example, in hiring an equally large security firm to undertake random authentications throughout the country.

In short, there is an extremely high level of significance to a pharmaceutical company in adopting a technology that empowers consumer authentication. For this reason, consumer empowerment represents a core quality. Any anti-counterfeiting solution that fails to provide this critical feature should only be adopted if there are compelling product-specific reasons that mitigate this requirement.

Cost and value
The investment needed for implementing an anti-counterfeiting solution is a complex issue and represents a concern largely driven by corporate matters that are specific to each individual company. For example, if a brand owner is being battered to the point where its branded assets are becoming devalued in the marketplace, then the cost of the anti-counterfeiting solution becomes assessed in relation to the loss being incurred. Alternatively, a brand owner that has been relatively immune may also opt to invest heavily in anti-counterfeiting measures because the path to product development and market penetration had required significant corporate resources or global brand imprinting.

An opposing viewpoint of fiscal restraint applies to those sectors that are restricted in their ability to pass on additional costs to their consumers by way of price escalation, and therefore the financial impact of an anti-counterfeiting solution becomes a sensitive issue. This concern is particularly germane to companies whose products are in extremely competitive markets or those that are regulated by the government. The pharmaceutical industry represents the best example in terms of the latter category, wherein governmental pricing authorities decree the market price of many medicines in some nations. In view of the widespread concern over pharmaceutical counterfeiting, it is likely the case that cost recovery by way of a modest price increase for implementing anti-counterfeiting measures would be permissible.

The cost of the anti-counterfeiting technology therefore represents an essential consideration in the path to choosing the right solution. The Golden Quality in this case is simple and represents one of the cornerstones of the business world - find a solution at the lowest cost and which offers the highest value proposition. There are no well-defined parameters as to how much a technology solution should cost when considered at the single item level, and therefore examined strictly in relation to the product's market cost. Some esoteric anti-counterfeiting solutions can be extremely costly, and therefore are clearly not suited for low-cost medicines. On the other hand, some low-cost solutions may not offer sufficient protection because the counterfeiter can easily duplicate them.

The value proposition in such cases is extremely low in terms of robustness (i.e., difficulty in duplicating the technology). This is disconcerting because the capital investment made in applying the solution becomes a loss proposition for the company, wherein the technology soon becomes either useless or obsolete in terms of brand protection.

The two pricing issues that brand owners must carefully sort through are capital investment and residual cost. There are no technologies that are entirely devoid of an initial investment because product-level implementation will inevitably require either new equipment acquisition or some modification of an ongoing production process. Residual cost refers to the actual implementation cost per product sold in the marketplace. One practical rule of thumb is that the technology cost should ideally be in the range of 0.1 - 1.0% of the current maximum retail price (MRP) for that product. Any cost beyond this range will be difficult to bear for most brand owners due to various strategic considerations, most importantly keeping their product competitive in the marketplace. After all, consumers want the best of both worlds - product protection without significant cost escalation.

The second Golden Quality, therefore, requires the technology offering to be of low cost in terms of capital investment and running cost, and yet maximally offer the other benefits listed in this section.

Forensics and interdiction
The deployment of an anti-counterfeiting technology by a brand owner is made with a singular goal - to reduce or eliminate counterfeiting and piracy in the marketplace against their products. This is maximally accomplished when the technology provides sufficient deterrence that makes it risky for the counterfeiter. Deterrence, in turn, is a result that occurs only when the technology empowers interdiction by in-house personnel or external agents. Interdiction, in turn, is an outcome that only arises if the technology has sufficient forensic applicability. Without that, an anti-counterfeiting solution is neither a solution nor does it effectively combat counterfeiting. This is precisely why brand owners in the path to making their choice must assess the forensic capability of a technological solution.

This may seem like a daunting task, and well outside the capabilities of many corporate executives and managers. However, the answers to a few simple questions are all that is needed. First, does the technology effectively differentiate a genuine from a fake item? All anti-counterfeiting solutions must pass this first level test, and one does not need to have security expertise to make this determination. Second, can the technology be utilized directly at the source, i.e., where the product is sold, to verify its authenticity, or does the product have to be taken to a laboratory for forensic analysis? Those technologies falling in the latter category are often extremely robust, but also suffer because the deterrence factor becomes devalued. Counterfeiters and their retail partners can relocate, go into hiding, or ensure that their premises are devoid of counterfeit products after such intervention. A technology that empowers point-of-sale authentication provides the greatest deterrent effect. And finally, can the technology be effectively used for prosecution? All major companies have a legal department that should be involved in making this assessment based on input from potential technology providers.
?The third Golden Quality therefore requires that an effective anti-counterfeiting technology must have robust forensic applicability, and which is ideally effectuated at the retail level. Brand owners will be rewarded by implementing those technologies that meet this requirement because of a simple fact of the human psyche - thieves do not like to get caught and when faced with a new technology that poses an interdiction threat, they will simply move on to other vulnerable products.

Simplicity and adaptability
The fourth Golden Quality concerns the properties of the anti-counterfeiting technology that ensure ease of implementation, use by the consumer, and long-term stability. Brand owners will spontaneously seek to apply those solutions that cause minimal disruption in the product manufacturing process. Some anti-counterfeiting technologies require significant intrusion at the plant level whereas others can be implemented with greater ease. It is rarely the case that any given technology provider will have an in-depth knowledge of the manufacturing process or what application strategies are best likely to work for a particular branded product.

The exact mode of application and the best solutions in this regard are highly product-dependent. Brand owners must therefore work closely with technology providers to arrive at an optimal implementation solution. Given the investment that is often required on the part of the brand owner, one path to arriving at a confident solution may involve undertaking a pilot project. This can be devoted to one particular brand in the company's product portfolio, a particular manufacturing plant, a specific geographic location, or some other filter that reduces the up-front commitment to adopt a specific technology and yet provides for an effective mechanism by which to evaluate that technology.
?It is inevitably true that once a particular technology is chosen, it is highly likely that the brand owner will be married to that solution for quite some time. During that period, the brand will certainly evolve and new requirements may be imposed, such as package modification, new marketing challenges, growth (or diminution) of sales, brand offshoots, altered manufacturing practices, new regulatory requirements, and various other unforeseen events. The best anti-counterfeiting technology in such circumstances is one that is highly adaptable and therefore can meet most new requirements. Technological adaptability also assures longevity because the technology can change with the times and needs of the brand owner.

Value-added features
All companies seek additional features that can be bundled into any newly acquired technology so that they are able to leverage their investment into other business areas. The same would be the case when adopting an anti-counterfeiting technology. The goal here would be to see what other applications or value-added features are provided by the technology in addition to combating counterfeiting. Although the main driver behind adopting a specific technology is to maximize brand protection, any other benefits offered by the same technology make it that much more appealing across a wider segment of the company's operational landscape.

One feature that is especially important in the context of an overall anti-counterfeiting strategy is a solution that provides supply chain tracking ability, also known as Track & Trace technology. Certain anti-counterfeiting solutions are deficient in this regard whereas for others, this is a core component of the technology itself. In the latter case, the supply chain management tools can be used at the discretion of the brand owner to track the movement of goods, to maintain inventory, to keep tabs on any diversions, to effectively undertake recalls when necessary, and to comply with emerging regulatory requirements for electronic pedigree (e-pedigree) generation. As discussed before, the emerging trade regulations will soon mandate a Track & Trace requirement for product importation in various countries. The pharmaceutical sector is particularly affected by this requirement due to imminent mandates in some markets for an e-pedigree for every medicine right down to the unit level. The supply chain management tool in this case must be able to generate such a report in electronic form to satisfy drug regulators in the U.S. and other countries soon to follow.

The fifth and final Golden Quality refers to anti-counterfeiting technologies that provide additional valuable features. The more value-added features that are offered by the technology, the greater will be the set of applications at the disposal of the brand owner. In such cases, the technology becomes integrated into a broader segment of the company's operations and helps promote the brand in ways that are supplemental to providing robust anti-counterfeiting protection.

Note
This document is continued in Part II, which contains a description of the currently available anti-counterfeiting technologies.

The author lives in Montréal and advises various stakeholders, such as governmental agencies, industry, and trade bodies, on optimal solutions to combating pharmaceutical counterfeiting and protecting consumers.

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