The Fake Pharma Phenom: How Technology is Making Affordable Drugs Safe

By Nick Slepko - May 30, 2012 | Tickers: CSC, GSK, IBM, MRK, TMO | 0 Comments

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In his new book, Phake: The Deadly World of Falsified and Substandard Medicines, American Enterprise Institute scholar Dr. Roger Bate journeys around the world on the trail of black market pharmacies and explores the impact counterfeit drugs are having on all walks of life.  While offering long-term international solutions, he explores how affordable technologies and consumer-driven demand are making pharmaceuticals safe and reliable.  Phake will be particularly helpful to investors trying to get a sense of markets yet to come, as well as generalists interested in understanding how the world economy really works.  (Pharmaceutical companies, consumers, investors, and governments will all find things to hate and love about Dr. Bate's research.)

Counterfeit drugs are a growing problem not only in the developing world, but in “safe” countries like the United States and Germany.  The World Health Organization estimates that 10% of global medicines are counterfeit, but only 60% of the cases are in developing economies.  While a number of articles in the popular press report that the sales of counterfeit drugs exceeded $75 billion in recent years, Dr. Bate points out that the figure is closer to $10 billion (mostly because the value of the products in emerging markets are so low), however fakes still kill over 100,000 people a year.  Governments and international agencies have proven as effective as regional DVD encoding in stemming the fake pharma phenom.

While Computer Sciences Corporation (NYSE: CSC) has employed audit compliance, supply chain management strategies, and other similar techniques to deal with counterfeits, they have seen the market reward them with a 40% drop in their share price.  Conversely, Thermo Fisher Scientific (NYSE: TMO) seems to have impressed investors with its tech-centric approach and is beginning to surge past its pre-recession market cap.  While counterfeit pharmaceuticals or those bought online (which are often diverted real drugs rather than actual fakes) are not all necessarily dangerous (or are the only affordable option), consumers are still interested in protecting themselves, and pharmaceutical firms are concerned about the ingredients they are purchasing for their products.

A subsidiary of Thermo Fisher originally developed a handheld device for the US military to detect dangerous compounds in the field.  Most everyone from the government of Nigeria to US drug makers now use the gadgets to assess component parts for quality and consistency.  A decade ago, 14% of products surveyed in China failed quality controls.  Recent follow-up studies by the University of Beijing and the American Enterprise Institute found that the use of the handheld devices had reduced the rates to less than 4%.  (Authorities in the US and elsewhere have also found modified variants of the Thermo devices useful for combating illegal narcotics as well.)

There is little to indicate people are less inclined to continue ordering affordable medications online and from overseas.  However, there has been increasing drive on the part of consumers to find ways of quickly and easily determining the authenticity of their purchases (regardless of the point of sale).  Earlier this month, IBM (NYSE: IBM) began using its cloud services to help manufacturers handle massive amounts of data in real time being generated by the Acumen Fund-backed social venture Sproxil’s Mobile Product Authentication phone app.  The MPA employs “crowd-sourced pharmacovigilance” to verify pharmaceuticals in seconds for pennies and was originally deployed by Sproxil in collaboration with Merck (NYSE: MRK) and GlaxoSmithKline (NYSE: GSK) to combat the deaths occurring from Africans using counterfeit malaria and TB drugs.  Their success has lead to almost all the major pharmaceutical manufacturers partnering with Sproxil, and for a few million dollars IBM is taking them all into the next phase by solving tech issues related to operating in rougher, less developed parts of the globe (which according to the movies is the likely vector for the Zombie Apocalypse and other super plagues).

While corporate controls and regulatory reform have a role to play in long-term solutions to safe, affordable, and accessible pharmaceuticals, it appears manufacturers and vendors that take advantage of current technologies that provide consumers with immediate, low-cost solutions sooner rather than later will continue to be rewarded by investors.

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