EU companies plan pilot scheme to stop fake drugs

By Ben Hirschler, European Pharmaceuticals Correspondent

BRUSSELS, June 1 (Reuters) - European drug manufacturers are working on new measures to stop counterfeit trade in medicines, with a pilot scheme using two-dimensional bar codes and tamper-resistant packaging planned for next year.

Bayer AG's BAYG.DE Arthur Higgins, who heads the European Federation of Pharmaceutical Industries and Associations, said he aimed to have the new secure supply chain system operational in one country during 2008.

If successful, it would then be rolled out to other markets.

Drug companies are increasingly concerned about bogus drugs getting into the legitimate distribution system, potentially posing a serious health hazard, as well as undermining the reputation of their products.

Just last month counterfeit versions of two of the world's top-selling drugs -- Eli Lilly and Co.'s (LLY.N) Zyprexa and Sanofi-Aventis SA's (SASY.PA) Plavix -- were found in Britain, and Higgins told Reuters he believed the problem was spreading.

The drug industry blames so-called "parallel trade" for fuelling the counterfeit traffic. Parallel trade is the legal practice in Europe whereby drugs are imported for repackaging and resale in high-price countries, like Britain, from countries where prices are lower.

Higgins, Bayer's head of healthcare, said parallel trade provided a perfect cover for criminals, who have already made a killing -- sometimes literally -- in Latin America and Asia.

"Economic incentives are so high and the penalties are so low and it is inevitable that the money goes to where the action is -- Europe with its open distribution system," he told the European industry association's annual meeting in Brussels. "The time is now for action".

The problem of fake drugs is gaining increasing attention in Europe, with the European Parliament holding a high-profile symposium on the subject in May and the Commission also studying whether to tighten regulations.

Drug companies would like to see a total ban on repackaging of medicines to effectively stamp out parallel trade. But the European Commission has, in the past, defended the right of traders to repackage and ship medicines under rules defending the free movement of goods.

Higgins said the introduction of unique coding for each pack of medicine together with authentication, track and trace systems and physical security in the form of tamper-resistant packaging could solve the problem.

The European industry favours two-dimensional barcodes printed on packaging during manufacture for its pilot scheme, rather than a more expensive electronic chip, or RFID, system.

The European Association of Euro-Pharmaceutical Companies, representing parallel traders, argues it is not to blame for counterfeit drugs and says its members are engaged in a legitimate trade that helps keep a lid on drug prices in Europe.

It accuses big drugmakers of conducting a smear campaign to suppress competition.