June 28, 2007

The world is awash in counterfeit and fake products, from handbags to cancer drugs. The economics of counterfeiting is simple and powerful: as long as counterfeiters can arbitrage the difference in price between the original product and a low-price copy (and get the copy past customs officials or other regulators) there will be a lucrative market for cheap imposters.

While many consumers may nod or wink at fake Gucci bags (although IP theft is still theft) they should be much more concerned about the rise in counterfeit or fake food products and pharmaceuticals.

The recent panic over melamine in pet food or tainted toothpaste from China is just the tip of the fake iceberg: Pharmaceuticals are a particularly attractive target for counterfeiters because sophisticated fakes are easy to make and can (think: cancer drugs) be sold in bulk for enormous profits.

Joel Schwarcz, a professor at McGill Univesity in Canada, recently put it this way: "It is hard to estimate the disastrous effects of infiltrating the pharmaceutical marketplace with antihypertensives, cholesterol lowering medications, cancer drugs and malaria treatments that look like the genuine article but contain little or no active ingredient...Roughly 10 percent of the world's medicine supply is now fake, with hundreds of thousands dying every year due to counterfeit or substandard medicine."

Infiltration will likely intensify as policymakers in rich nations push for access to cheaper drugs from abroad - often from poorer countries with lax regulatory authorities.

In short, the longer the supply chain gets, the more vulnerable it becomes. The book to read on the topic is Dangerous Doses, by Katherine Eban.

Posted by Paul Howard at June 28, 2007 03:59 PM