NCPA - National Center for Policy Analysis

The Role of Regulation and Distribution Channel in Drug Safety

May 18, 2012

Drug safety is a global health problem.  Unsafe drugs cover drug products that have been made to appear like the real thing by counterfeiters, as well as substandard products made by legitimate manufacturers.  However, the World Health Organization has thus far failed to distinguish between the two -- a distinction that is crucial for a number of reasons, say researchers with the National Bureau of Economic Research (NBER).

  • First, poor quality drugs differ greatly in active ingredient from absolute counterfeits; the former usually has at least some active ingredients, while the latter almost always has none.
  • Second, the amount and composition of ingredients have important impacts on patient health.
  • Finally, counterfeit and substandard drugs often require different types of remedy to prevent their spreading, as one usually entails intent while the other does not.

To this end, the researchers conducted an extensive analysis by differentiating between substandard and counterfeit drugs in the following way:

  • All drugs that pass a visual check and contain at least 80 percent of the correct active ingredient are classified as "passing."
  • All drugs that pass a visual check and contain some but less than 80 percent of the active ingredient are labeled "substandard."
  • All drugs that fail a visual inspection or contain none of the active ingredient are labeled "counterfeit."

Following this model, the NBER study obtained the following results:

  • Of 1,437 samples of Ciprofloxacin from 18 low- to middle-income countries, 9.88 percent of the samples fail the tests and 41.5 percent of the failures are counterfeits.
  • Products that are registered by western regulators or the World Health Organization have the highest passing rate of (98.5 percent).
  • Products registered with local authorities also have a greater passing rate (93.5 percent) than non-registered products (69.8 percent).

This study also yielded interesting results in pricing.  Substandard drugs are priced 30.3 percent lower than comparable generics in the same city but counterfeits offer almost no discount relative to the genuine version they aim to mimic. These findings suggest that substandard and counterfeit manufacturers are likely to follow different business strategies.

Source: Roger Bate, Ginger Zhe Jin and Aparna Mathur, "Counterfeit or Substandard? The Role of Regulation and Distribution Channel in Drug Safety," National Bureau of Economic Research, Working Paper 18073, May 2012.

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