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Pfizer Latest Victim in Organized Pharmaceutical Theft Epidemic

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BAD MEDICINE
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According to SecuringPharma.com, the "only dedicated and centralised source of breaking news, market intelligence and technical information to help pharmaceutical manufacturers enhance the security of their supply chain," Pfizer lost a truckload of generic drugs to hijackers as they made their way from Memphis to a Rhode Island CVS (CVS) facility.

An alert by the Pharmaceutical Cargo Security Consortium says "around 13,000 packs of assorted generic medicines in 392 cases were seized in the robbery with a value of around $66,000," including "cholesterol-lowering colestipol tablets, eplerenone tablets for heart failure, the antibiotics azithromycin and clindamycin in oral and topical formulations, sulfasalazine for inflammatory bowel disease and arthritis, quinapril for high blood pressure and the antidepressant sertraline."

SecuringPharma notes that the Pfizer theft "is small by value - well below the average $5m per pharmaceutical load theft estimated by Freightwatch International - but provides further evidence that drug shipments are being targeted by criminal gangs who subsequently try to re-introduce them into the supply chain."

We've explored organized pharma theft in the past -- which, for thieves, can be far more lucrative than good, old-fashioned bank robbery.

When the legendary Willie Sutton was asked why he robbed banks, he answered, “Because that’s where the money is.”

But the money these days is not in walking into a Chase branch and handing a note to a teller -- it's in ripping off shipments of things like azithromycin.

Released in January, FreightWatch International’s US Cargo Theft Annual Report [pdf] shows that pharmaceuticals once again topped the list with the highest per-incident value last year -- exactly as they did in 2009.

According to statistics, pharma theft makes up only 5% of all cargo theft by volume, but averages $3.78 million per robbery. Tobacco, at a relatively miniscule 1%, averages $1.26 million, and electronics, at 19%, come in third at $512,000 per incident.

Dan Burges, corporate director of global intelligence at FreightWatch, told us that, as with all stolen goods, prescription drugs aren’t worth a thing until they can be sold.

“The huge difference is, if you steal $100,000 from a bank, you have $100,000,” he said. “If you steal $100,000 worth of pharmaceuticals, you’re getting 10-20 cents on the dollar.”

However, as Doug Johnson, vice president of risk management for the American Bankers Association pointed out last year, “[Bank robbery] is not a good way to make money.” And the numbers seem to bear this out: 10-20 cents on the dollar on a $100,000 theft still far exceeds the roughly $4,000 bank heists generally net.

Even though pharma theft remains high, the physical losses are not of material importance to companies like Novartis (NVS), Merck (MRK), Lilly (LLY), et al. What is important, as Les Funtleyder, a health care strategist at Miller Tabak, explained to us, is for drug companies to keep trying to bulletproof the security of their supply chains.

“The knock-on effect of pharmaceutical theft is that people could start to feel concerned about where their drugs are coming from,” Funtleyder said. “Supply chain integrity is incredibly important in the US -- you need to be able to trust your drugs are what they are, that they’re coming from where they’re supposed to be coming from, and that they’re in the condition they need to be in.”

To achieve these ends, Pfizer (PFE), for example, tags bottles of Viagra with Radio Frequency Identification Devices in an effort to combat not only theft, but also counterfeiting of the popular ED drug. It’s a sort of LoJack device for pills, not unlike the GPS systems some banks have implanted into the bags of cash they hand over to robbers, allowing investigators to track their locations from laptops as they flee.

Another significant trend in the FreightWatch report included a spike in full-truckload thefts of copper and aluminum, from 15 in 2009 to 43 in 2010, “clearly reflecting their value in today’s marketplace.” (With aluminum at $2,446 a ton -- the highest it's been since 2008 and up 85% from its 2009 low, and copper at $4.36/lb -- up 32% over the past 12 months, it’s little wonder theft rates have jumped.)

Two other fascinating economic/sociological details emerged from the recent FreightWatch data:

  • For the first time, the food and drinks category surpassed electronics in total number of thefts; rice, sugar, tea, and coffee were most popular, followed by meats and canned/bottled drinks. As for electronics, televisions were most-commonly stolen, followed by computer hardware and cellphones.
  • While New Jersey cargo thefts soared by 142% (121 vs 50 a year earlier), Texas saw a 24% decrease.

Why?

From the FreightWatch report:

“The decrease in Texas is largely attributed to the lack of thefts involving roofing materials from the Dallas/Fort Worth area. This area sustained significant hail damage in 2009, whereas the 2010 season was relatively quiet, decreasing the overall demand for shingles and other roofing materials.”

However, with 100 million Americans suffering from high cholesterol, it's a fair bet those colestipol tablets'll go fairly quickly.
POSITION:  No positions in stocks mentioned.

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