UNHEALTHY SITUATION: PHARMACEUTICAL THEFTS - DON’T BE LULLED INTO A FALSE SENSE OF SECURITY
According to a recent Logistics for Life Science article, there has been a dramatic decrease in pharmaceutical thefts. The article cites that in 2009 there were 47 large-scale pharmaceutical thefts reported, while in 2016, there were fewer than 15 thefts with an average loss of $200,000.
For pharmaceutical executives this may sound like good news – so much so that they may decide to significantly cut back on their security programmes for the products they ship globally.
However, I would like to be the voice of caution and suggest they reconsider. I believe that the extent of cargo theft is much greater than it appears – and that numbers like the ones above, which validly represent what is reported – are giving pharmaceutical executives a false sense of security.
The overall issue of cargo theft
The reason I can so confidently make this claim is that I have conducted extensive research on cargo theft over the years, especially in the pharmaceutical industry.
Back in 2015, for instance, I worked with Sensitech Inc.’s SensiGuard Supply Chain Intelligence Center (SCIC) to explore how much of a concern is cargo theft to European pharmaceutical companies. We surveyed executives involved in the distribution of products in the pharmaceutical supply chain and discovered:
· 91% of the executives surveyed consider pharmaceutical cargo theft to be the top threat to their business;
· Over 80% of them feel that the risk of theft had increased over the previous three years;
· 36% thought there was a significant increase in cargo theft during that time period.
These opinions clearly indicate that a) pharmaceutical cargo theft is a big threat to business, b) the threat of theft is increasing, and c) it’s increasing significantly.
One of the key ways that pharmaceutical companies protect themselves from this threat is through global intelligence education, which includes numbers on reported cargo thefts like the ones mentioned. It also includes alerts on specific hotspots, modus operandi, and types of theft that are occurring where their company’s products are moving throughout the world.
However, there is an increasing issue with getting this intelligence, because for a variety of reasons, there is significant underreporting of pharmaceutical thefts globally.
A recent case in the United States is a perfect example of this. A large food and drug retailer was required to pay a $3 million settlement for failing to report the theft of drugs. A U. S. Drug Enforcement Administration (DEA) official said that this kind of reporting delay is “alarming.”
The dichotomy: A big threat, but low numbers reported
Given the perception of the pharmaceutical executives my team surveyed, many of whom are from some of the largest global companies in Europe, the relatively small number of yearly reported thefts clearly doesn’t represent the true state of the industry.
For instance, there were only 24 European pharmaceutical thefts reported in 2015 according to SensiGuard SCIC reports and analysis, yet recent research points to the fact that the real number of thefts is most likely significantly higher.
Without a clear understanding of how prevalent cargo theft is, pharmaceutical executives may underestimate how critical it is to secure their shipments and they therefore may take fewer precautions to effectively protect their cargo. And, consequently, their biggest concern – theft of product – is indeed becoming a bigger threat.
Why is there such a gross underreporting?
When it comes right down to it, the total annual loss of cargo stolen in transit is relatively unknown for two simple reasons. The first one points back to the above example in the United States. For a multitude of reasons, cargo thefts are oftentimes simply not reported, which keeps cargo theft numbers artificially low and demeans the severity of the issue.
There are organisations – like the DEA in the United States – that enforce, collect, and monitor cargo theft, such as law enforcement, media, governments, or private agencies. If a company that experiences cargo theft does not report or disclose theft to any or all of these entities, then there is no way to track the thefts. Sometimes this failure to report is due to concerns about potential insurance premium increases or brand image damage. Other times it’s simply because of oversight or lack of knowledge concerning the consequences that underreporting can have.
The second reason that the true extent of cargo theft is unknown is because of the fact that the theft of pharmaceuticals is often misreported or categorised as other types of crime. These thefts are often reported as stolen vehicle thefts, theft from vehicles, or just plain theft. Typically, there are no global standards for reporting such thefts, so these kinds of losses are not included in the annual numbers of reported global cargo theft.
Because of these two factors, it is nearly impossible to accurately track actual pharmaceutical thefts. And, without the proper information, the organisations that track, collect, and disseminate the extent of cargo crime cannot intelligently make any recommendations on how to successfully avoid product thefts.
So, seriously – how big of an issue is this?
To gain a better understanding of the extent to which cargo theft underreporting occurs, the SensiGuard SCIC and I once again surveyed this market. We solicited opinions from European pharmaceutical manufacturer security personnel, risk managers, product security representatives, supply chain distribution specialists, insurance experts, and law enforcement.
We wanted to find out the degree to which underreporting occurs and why. Here is what we learned:
Extent of theft in the industry. We first explored how much underreporting these executives believe occurs in the pharmaceutical industry from a global perspective.
· Across the board, almost all the executives surveyed agree that underreporting is a significant occurrence. In fact, over 80% of these industry experts believe there is a major-to-moderate problem in the reporting of pharmaceutical thefts. Less than 3% believe there is no problem.
· To put this in perspective, consider the 24 reported thefts of pharmaceutical cargo in Europe in 2015. Almost all (93%) of the executives surveyed believe that the actual number of unreported thefts was at least twice the number of reported crimes reported that year.
· Drilling down deeper, over a third of the respondents stated that the number of unreported thefts was most likely three to five times greater than what was reported.
· Even of more concern, there were over 20% of respondents that believed the actual number of thefts could be five to ten times greater than the 24 reported crimes.
· Based on these findings, a conservative estimate for the actual number of pharmaceutical cargo thefts in 2015 could be anywhere from 72 to 120 incidents.
Extent of theft within their own companies. We also asked the pharmaceutical company executives to share the number of thefts that actually occurred in their organisations for the years 2013, 2014, and 2015:
· The vast majority (between 79-100%, depending on the year) reported between 1 and more than 15 cargo thefts each year;
· Of these, approximately 50% said that their companies had between one and five cargo thefts per year;
· The remaining respondents (between 29-50%, depending on the year) experienced between six and more than 15 cargo thefts during this time period.
Extent of unreported versus misclassified. To find out more about the reasons underreporting occurs, we asked these executives what they felt occurred more—not reporting cargo thefts or misclassifications:
· For the executives that responded, 69% of the incidents of underreported theft in their companies were cases of not reported incidents and 31% were misclassified or misreported.
· As to frequency, 55% of the incidents of underreporting occurred an estimated 10 or fewer times, with 45% of the underreporting occurring from 11 to more than 40 times per company.
The reasons behind underreporting. With this massive extent of underreporting occurring, we explored why it occurs within a company. Here are the top reasons:
· Company policy. Many of the executives expressed that many companies do not report crime because of insurance or reputation-related concerns, as earlier discussed;
· Monetary value of the cargo. Another key reason is the value of theft was not considered significant, so companies may want to avoid the costly process of reporting the loss;
· Loss value was below the deductible. A related reason is the fact that companies once again may want to avoid the cost of submitting an insurance claim for low-valued losses. Over 50% of the companies surveyed set a minimal threshold value that must be met before officially reporting a pharmaceutical theft loss, with the most common threshold set at €250,000.
Underreporting: What’s real?
So what is real and what is not when it comes to the theft of pharmaceutical products? We may never know, but it’s clear that the actual number of thefts seems to be exponentially higher than those reported on a yearly basis.
Let’s look at what we do know.
For instance, based on the research, it appears that there could be anywhere from 72 to 120 incidents of pharmaceutical thefts in Europe in 2015. Even at a low average number of $200,000 per theft, this would mean a loss to the industry of $14.4 to $24 million in stolen products. With the average loss of $42 million per theft (from 2009 data), the real value of lost cargo could be between $3 and $5 billion.
That is much different than the reported 24 thefts in 2015 – which at an average of $200,000 would only be valued at $4.8 million.
Are the risks worth it?
The results of our underreporting research show that people who work in the pharmaceutical industry in Europe believe that cargo theft underreporting is a problem and it is very prevalent. By not reporting any type of theft, especially significant ones to law enforcement and data monitoring companies, pharmaceutical companies contribute to misinformation and a sense of false security within the industry and to other interested parties, such as insurance companies.
This kind of misreporting may help with short-term goals, but in the end, the costs could be exorbitant.
Given these insights, it would be wise for pharmaceutical companies to reconsider their security measures, especially as criminals are becoming more sophisticated and the theft of pharmaceuticals is more lucrative.
About the author:
Marv Shepherd Ph.D., is Professor Emeritus, College of Pharmacy at the University of Texas and President of Partnership for Safe Medicines.
He has conducted research on drug importation, drug counterfeiting and drug diversion for close to 20 years. His research and expertise on drug diversion, importation and drug counterfeiting has been featured on CNN News, NPR Radio: First Edition, Newsweek, Wall Street Journal, Money Magazine, Time Magazine, Prevention Magazine, US News and World Report, New York Times, USA Today, Washington Post, plus many other national newspapers, magazines and television and radio news broadcasts. He has testified before U.S. Congress four times on drug importation, prescription drug diversion and counterfeit drugs.
Dr. Shepherd is currently the President of the Partnership for Safe Medicines, an organisation dedicated to fighting counterfeit medications, drug diversion and informing healthcare professionals and consumers about fake, substandard and diverted drug products.