Battling Drug Diversion and Counterfeiting
The Epidemic Plaguing the Pharmaceutical Industry
Sreedhar Patnala, General Manager, Systech
The integrity of global supply chains and patient safety are threatened by pharmaceutical diversion and counterfeiting. As illicit actors exploit vulnerabilities across distribution channels, amid the rise of online marketplaces, the industry faces increasing pressure to safeguard products. Addressing the challenges requires robust strategies to ensure authenticity, traceability and consumer protection.
1. How has the global pharmaceutical supply chain evolved in a way that has unintentionally enabled drug diversion and counterfeiting to thrive?
In recent years, the global pharmaceutical supply chain has seen significant shifts. From the rise of e-commerce to increased digitisation and drug shortages, each has offered an entrance opportunity for criminals to access the market. Because of this, the counterfeit and diversion issue plaguing the industry has only continued to grow.
For instance, there has been a significant increase in the number of illegal online pharmacies, many of which pose as legitimate, accessible solutions to consumers. In fact, a recent report from the Royal Pharmaceutical Society revealed that vulnerable patients facing shortages of medicines such as obesity drugs, ADHD medication and hormone replacement therapy (HRT) are being targeted by fake online pharmacies. These sites disregard regulations, selling fake or unsafe pharma products, and pose a huge threat to the safety of consumers.
2. In your view, what are the most critical technological blind spots that counterfeiters exploit across pharmaceutical distribution networks?
Pharmaceutical supply chains have long faced fragmentation. Maintaining oversight is inherently difficult and data is often siloed. This presents a critical vulnerability that bad actors can exploit, especially around product diversion. Even with regulations in place that require standardized, interoperable systems for sharing data, gaps still exist. These gaps reduce visibility and transparency, making it easier for counterfeit or diverted products to enter undetected. Without a reliable, real-time view of product movement, companies cannot establish a trusted timeline of events, leaving the entire distribution network vulnerable to exploitation.
3. As online pharmacies and marketplaces become more prevalent, what specific digital threats have emerged, and how can pharmaceutical companies counteract them effectively?
Amidst the industry-wide challenges faced, online pharmacies – both legitimate and illegitimate – have become more prevalent. Consumers turn to these companies as they appear as genuine source points, despite being very much the opposite. This highlights the great lengths individuals are willing to go to in order to obtain the medicine they need. This enables bad actors to increase their profits in the e-commerce space, expanding these markets and making it more challenging for customers to decipher what is genuine and trustworthy. The uncertainty and danger instilled in online markets confirm the importance of implementing serialisation globally and making improvements across the pharmaceutical supply chain to help combat counterfeiting and diversion.
Manufacturers must use a multilayered approach, including serialisation, traceability and authentication solutions, to effectively combat these supply chain threats in the pharmaceutical sector.
4. Could you elaborate on the solutions preventing the success of diversion and counterfeit operations?
Diversion and counterfeiting can be effectively addressed through a layered approach combining serialisation, traceability and product authentication technologies.
The foundation lies in serialisation – assigning a unique identifier to each product unit. These identifiers, often encoded in barcodes or QR codes, enable item-level visibility across the supply chain and form the basis for regulatory compliance and anti-counterfeiting efforts.
Building on this, traceability technologies allow manufacturers to monitor and record the movement of goods in real time, from production to the final customer. This includes documenting where the product is, when it was moved, and by whom, enabling early detection of unauthorised distribution or anomalies. Such visibility is critical for strengthening data integrity and confirming the safety and proper handling of pharmaceutical products.
To further reinforce product security, authentication technologies such as digital fingerprinting and non-replicable identifiers allow for real-time verification of a product’s authenticity – often via a mobile device – without the need to alter existing packaging. These tools are essential for detecting counterfeit or diverted items quickly and accurately.
Together, these solutions create a cohesive and interconnected supply chain network that delivers far more than just product safety. Enhanced visibility and sophisticated analytics reveal valuable insights into distribution trends, sales patterns and suspicious behaviour. This empowers pharmaceutical manufacturers to optimise operations, respond proactively to shortages and maintain brand reputation.
While the rise of online pharmacies and complex global logistics makes it harder to identify bad actors, implementing a robust traceability framework helps safeguard patients and ensure only genuine products reach their intended destinations.
5. With advancements in AI and machine learning, how are these technologies being leveraged to detect and prevent counterfeiting in real time?
The proliferation of artificial intelligence (AI) is set to have a major impact on the pharmaceutical supply chain. The creation of a digital blueprint of packaging artwork characteristics using machine vision and machine learning is one noteworthy advancement in AI-powered authentication technology, allowing for accurate product identification through pattern recognition. Additionally, AI can be used to identify trends and highlight areas of focus for illicit activities.
Smart packaging technologies such as smart sensors provide access to invaluable insights that can inform future decision-making. A business can begin exchanging data and gathering end-to-end information about a product's journey immediately after implementing the newest technologies and solutions. For instance, access to information such as inventory levels, item status and location can help pharmaceutical manufacturers optimise production and meet customer demand efficiently. Adding to this, smart packaging technologies boost interconnectivity and promote collaboration throughout the value chain. To ensure a consistent product flow and address pharmaceutical shortages, smart packaging systems connect production and supply chain requirements, optimise internal processes, and increase efficiencies.
6. How does product authentication differ from traceability in practice, and why is it important to view them as distinct yet complementary strategies?
Product authentication and traceability serve different but complementary roles in protecting supply chains. For example, serialisation solutions assign unique identifiers to individual products, enabling centralised data management and creating a single source of truth. This eliminates conflicting information and reduces reconciliation efforts. Serialisation acts as the backbone that connects manufacturing lines, warehouse systems, distribution networks and trading partners under a unified platform.
Building on this foundation, traceability technologies leverage serialisation data to enable real-time tracking and monitoring of products as they move through the supply chain – helping detect diverted goods and ensuring full product visibility.
Complementary solutions such as Radio Frequency Identification (RFID) enable manufacturers and their partners to track products in real time, monitor temperature conditions and detect unauthorized handling or diversion.
Product authentication technologies focus on verifying whether a product is genuine. Businesses should incorporate digital authentication solutions that use existing barcodes and packaging to provide instant, non-replicable verification using a smartphone app. This is hugely beneficial to detecting counterfeits, without having to alter packaging.
Viewing these as distinct strategies is crucial: traceability helps ensure supply chain transparency, while authentication secures product integrity. Together, they create a layered defence against fraud, counterfeiting and diversion.
7. Looking ahead, what future regulatory or technological shifts do you foresee reshaping the battle against pharmaceutical diversion and counterfeiting in the next 5 to 10 years?
Over the next decade, the pharmaceutical industry will undergo significant regulatory and technological shifts that will redefine how diversion and counterfeiting are addressed across the global supply chain. These changes are driven by advances in technology, increasing globalisation and evolving regulatory frameworks. In response to the rising complexity and volume of pharmaceutical distribution, the pharmaceutical supply chain management market is projected to grow from $2.6 billion to $2.86 billion in 2025.
This year’s LogiPharma 2025 – the world’s leading life sciences and pharmaceutical supply chain event – highlighted several emerging trends that point to the direction of future transformation.
Strengthening serialisation and traceability standards
Serialisation and traceability will remain the backbone of anti-counterfeiting strategies. However, best practices are likely to evolve toward real-time data exchange, increased interoperability between national systems and tighter integration across Level 1–5 systems. This will push companies beyond basic compliance, requiring agile, digital-first infrastructures that support continuous verification and secure, transparent data sharing across the supply chain.
Expansion of RFID technology
Radio-Frequency Identification (RFID) is expected to play a far more prominent role in the near future. Unlike barcodes, RFID tags support non-line-of-sight reading, bulk scanning, and automated data capture – delivering significant operational benefits for warehousing, logistics, and inventory management. When implemented at the item or case level, RFID provides real-time location data, authenticates product movement and can trigger alerts when products deviate from expected routes or storage conditions. As tag costs decline and infrastructure improves, RFID adoption is set to accelerate, particularly for high-value or temperature-sensitive pharmaceutical products.
Adoption of digital twin and blockchain technologies
The rise of digital twin serialisation will offer a more granular, digital representation of each product's lifecycle. These digital twins enhance traceability and enable proactive management of potential disruptions. At the same time, blockchain technology is gaining traction for its ability to provide immutable records of a product’s journey, ensuring data integrity, enabling decentralised verification and making it harder for counterfeit goods to enter the system undetected.
Smart packaging and predictive analytics
Packaging innovations, such as smart sensors, NFC tags and tamper-evident features, are becoming more common. These technologies collect real-time data on product condition, location and status, enabling manufacturers to track inventory and optimise production to meet demand. Combined with AI-driven analytics, these tools help identify suspicious behaviour, unusual distribution patterns or potential diversion threats – empowering faster, data-driven decision-making across the value chain.
Looking ahead, serialisation and traceability must be recognised as strategic enablers, not just compliance tools. They will play a central role in multilayered approach to improving supply chain security, operational resilience and adaptability to regulatory changes. Manufacturers must take a multilayered approach to effectively combat supply chain threats in the pharmaceutical sector.
To support this transformation, IT infrastructure must continue to evolve, ensuring that systems can scale, integrate and respond in real time to emerging challenges.
Footnotes:
1. https://www.dea.gov/alert/dea-issues-warning-about-illegal-online-pharmacies
2. https://www.rpharms.com/Portals/0/RPS%20document%20library/Open%20access/Medicines%20Shortages/Medicines%20Shortages%20-%20Digital%20-%20201124.pdf
3. https://www.rpharms.com/Portals/0/RPS%20document%20library/Open%20access/Medicines%20Shortages/Medicines%20Shortages%20-%20Digital%20-%20201124.pdf
4. https://www.systechone.com/products/pharmaceutical-track-trace/?utm_source=finn&utm_medium=pr-article&utm_campaign=2025_bp&utm_content=pfe
5. https://www.systechone.com/products/serialization-regulatory-compliance-uniseries/?utm_source=finn&utm_medium=pr-article&utm_campaign=2025_bp&utm_content=pfe
6. https://www.systechone.com/products/pharmaceutical-track-trace/?utm_source=finn&utm_medium=pr-article&utm_campaign=2025_bp&utm_content=pfe
7. https://www.systechone.com/products/product-authentication-unisecure/?utm_source=finn&utm_medium=pr-article&utm_campaign=2025_bp&utm_content=pfe
8. https://www.thebusinessresearchcompany.com/report/pharmaceutical-supply-chain-management-global-market-report
Author Bio
Sreedhar is the General Manager at Systech, where he is responsible for architecting the company's strategic direction, leading the organisation in its mission to help companies facing regulatory or business challenges to effectively apply traceability and product authentication solutions. Sreedhar is an accomplished technology leader with a strong background and experience in various industries, including enterprise storage, financial services and manufacturing.
