With increasing R&D costs and marketing expenses, fraud in the pharmaceutical industry seems to have become an inevitable ingredient in the industry. Developing markets are becoming more prone to the three ills of corporate governance? fakes, fraud and forgery. A preventive-check mechanism for creating an anti-fraud environment and proactively addressing the risks is the need of the hour even, while there are increasing regulations for global pharmaceutical companies in the developed markets.
The Foreign Corrupt Practices Act (FCPA) has become an enforcement priority for regulators and major compliance issue for the US companies. There are increased investigations by the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) for prosecuting business corruption raising financial risks to companies. Pharmaceutical companies in the developing countries have to maximise the generic opportunity as a large number of drugs are expected to lose patents. These drugs represent $80 billion in innovator sales between the years 2011 and 2013. Developing countries are coming together for an anti-fraud mechanism which can prevent patent infringement. This can also stop the allegations made by a few global pharmaceutical companies which have apprehensions to outsource to developing countries like India.
A KPMG report says that with the rapid growth of online pharmacies, with the potential to bypass safeguards, together with increasingly sophisticated technologies enabling the production of convincing fakes, fraud and counterfeiting is no longer just a problem in developing countries and requires innovative technical solutions to overcome.
Fraud management has different facets such as bribery investigations, counterfeits, conducting due diligence activities in high-risk countries, etc wherein compliance becomes mandatory by the companies for adherence. A report released by the Organisation for Economic Co-operation and Development (OECD) says that 75% of fake drugs supplied worldover have some origins in India, followed by 7% from Egypt and 6% from China. A data on counterfeit medicines are difficult to obtain by virtue of its very nature, a recent WHO report estimates the prevalence to be around 1% of sales in developed countries to over 10% in some developing countries.
Fraud incidences occur in countries where access to medicines is poor. A study by the WHO?s International Medical Products Anti-Counterfeiting Taskforce (IMPACT) indicated in 2006 that in countries like the US, EU, Japan, Australia, Canada and New Zealand, the incidence of spurious/counterfeit drugs is less than 1%. On the other hand, in parts of Asia, Latin America and Africa, more than 30% of the medicines are counterfeits.
As Ranjit Shahani, president of Organisation of Pharmaceutical Producers of India (OPPI) puts it: ?It is a rather arduous task to estimate the true penetration of counterfeit drugs. It is certain that the problem persists in both the developed and developing worlds and is a growing threat to public health. Counterfeiting is a low risk high returns business making it lucrative for unscrupulous people all over the world.? The industry has looked at various measures to prevent counterfeiting including innovative packaging, bar coding and RFID.
Says Ted Acosta, global life sciences leader, fraud investigation and dispute services, Ernst & Young, ?Companies must take preventive steps by tightening their own internal controls and punishing employees and agents that engage in inappropriate behaviour to mitigate the fraud risks in the pharmaceutical industry. The current level of fraud in India vis-a-vis other Asian regions is very difficult to establish without a careful empirical study, if such a conclusion can be reached at all.?
According to healthcare analysts, the government regulations must be accompanied by enforcement, whether in the form of implementing checks and balances to prevent corrupt persons from succeeding in their efforts or in the form of prosecutions of both the offerers and the recipients of corruptive payments. One of the recent and perhaps a first check mechanism is an SMS-based technology by Unichem Labs and PharmaSecure to protect consumers and pharmaceutical manufacturers from threats of counterfeiting and diversion. Unichem has purchased 70 million of PharmaSecure?s codes to be used for protecting its products and consumers from counterfeiting and diversion. Perhaps this is the only technology currently in use in the Indian market that empowers consumers themselves to check the authenticity of their medicines.
Companies are being demanded to do business more openly and transparently, which includes sharing information with other business partners and even submitting themselves to external audits. The US and European MNCs are more actively engaging in deliberate efforts to ascertain the trustworthiness of agents and other third parties they engage locally, particularly in emerging markets, summarises Ted Acosta.