Indian start-up strikes deal to combat counterfeiting of medicine

A start-up company in New Delhi announced a deal today with a major Indian drug manufacturer to combat counterfeit medications, a $32 billion illicit business that has been blamed for hundreds of thousands of deaths.

Counterfeits – not to be confused with generic drugs, which are made from the same active ingredients as trademarked drugs but for a lower cost – pose as a drug they are not.

Moving back the expiration date on old drugs is the most common form of counterfeiting. Other methods include producing fake pills from a fraction of the necessary ingredients, or wholly out of chalk, sometimes using rusty cement mixers.

PharmaSecure, the New Delhi start-up, has developed an elegant solution to the problem, which could help India protect its reputation as a major supplier of drugs.

The company will print a random code on up to 70 million pill packets, which customers can then text message to a phone number linked to a database. Computers look up the code, cross it off, and send back the expiration date and batch number to the customer.

If multiple customers send in the same code, the system warns them instantly. It also alerts manufacturers that fakes are afoot and helps pinpoint where. For drugs made in India but exported, the company can simply set up a phone number to route calls coming from other countries.

The company will thus be able to monitor the massive sales volumes in developing countries like India, not by battling opaque supply chains and endemic corruption, but by leapfrogging those problems with a cheap, mass technology – the mobile phone.

Not bad for an idea cooked up by a group of college students.

“There are hundreds of thousands of people dying, and there’s something I can do about this. It felt like I didn’t really have a choice to just walk away without at least investigating it and seeing if we could do something, seeing if it would be possible to build this,” says Nathan Sigworth, who founded PharmaSecure after graduating in 2007 from Dartmouth College and moving to India.

The deal announced Tuesday with Unichem Laboratories for 70 million codes marks the first major order for Mr. Sigworth’s company.

As major exporter, India scrutinized over fakes

Roger Bate, a counterfeit medication expert at the American Enterprise Institute in Washington, estimates that as many as 1 million people die a year from taking faulty medicines, including fakes but also those that are degraded or substandard. (Editor's note: The original version wrongly attributed all the deaths to fake medicines alone.)

Such counterfeits make up more than 10 percent of the global medicine market, according to estimates by the US Food and Drug Administration. India in particular worries global health officials because the country manufactures and exports much of the medicine used in poor nations where the problem is the worst.

Indian manufacturers have reasons to be concerned about their reputation, even when they are not the perpetrators. In 2009, investigators determined that a shipment of fake drugs to Africa labeled “Made in India” actually came from China. Kenya has drafted a law that’s being watched around Africa that would restrict medicine imports from India, but loose language could halt the trade of legitimate generics.

An Indian government study claimed that just 0.04 percent of drugs it sampled turned out to be “spurious.” But a recent report coauthored by Mr. Bate dubbed that finding “quite incredible.” His research, from a small sample, found 12 percent of medicines sold in Delhi pharmacies and 5 percent sold in Chennai were “substandard.” Other estimates over the years have run much higher.

Indian newspapers regularly report new cases of fake drug discoveries. Earlier this year, 30 suspects were arrested for involvement in fake labeling of expired medicines. In 1998, authorities blamed fake cough syrup made with antifreeze for the death of 30 infants here.

Solutions – and some skepticism

A range of technologies are being tried to combat the problem. Bate says he can see PharmaSecure’s approach working in the short-term, but he has concerns down the line.

“I wouldn’t be surprised if the fakers manage to set up fake texting systems, too,” says Bate by e-mail. “But anything that raises the cost to counterfeiters is potentially valuable, and PharmaSecure seems to have a pretty good approach that will do this, so I’m broadly supportive.”

PharmaSecure's Sigworth notes that India maintains tight security on phone numbers, making fake texting systems a high-risk proposition for potential cheaters.

Sigworth says that his company, in addition to making counterfeiting less profitable, has already anticipated and preempted various workarounds that the fakers might try, but he remains tight-lipped on that to keep them guessing. The software that generates the random numbers uses encryption to fend off computer hacks.

Bate also wonders whether people will continue to bother calling the numbers after the novelty has worn off and a sense of security sets in.

Initial pilot testing found 5 percent of customers call the number; PharmaSecure hopes to raise the number with marketing.

Building a network

PharmaSecure sees itself both as a social venture capable of saving lives, and a for-profit business – with greater potential for both in the two-way communication with consumers.

“Putting codes on packages is not a very lucrative business model,” says Sigworth, who likens that part of the venture to Google search – a social benefit that enables a bigger business opportunity. “Putting the codes on the market, having the consumers authenticate, this is all building a very, very valuable network and communications platform with consumers.”

Under the new model, customers might call not just to check the drugs but also to get reminders to take or refill them. PharmaSecure plans to offer manufacturers the chance to text-message, or SMS, customers such reminders, which would help their sales.

They also envision manufacturers asking, “Are you feeling better?” Such market research has until now been virtually impossible in the vast informal marketplace of India’s poor.

Marketing guru Seth Godin says it’s an example of a concept that he’s dubbed “permission marketing.” Businesses deliver messages that consumers are willing to receive because they are anticipated and relevant.

“It’s prohibitively expensive to reach 900 million people with traditional advertising,” says Mr. Godin. “SMS is targeted, it’s efficient, it’s measurable, and it’s cheap.”

But the system will be “opt out,” meaning customers would receive the additional messages without requesting the service, or “opting in.” Godin says “opt in” tends to be more effective in the long run.

“Generally people don’t care at all about privacy. What they care about is being surprised,” says Godin.

As for privacy, PharmaSecure says it will never disclose customer phone numbers, even to the manufacturers. But aggregated data about medication use and effectiveness might be passed along to industry groups or public health organizations.