Theft of Pharmaceuticals: briefing

Meeting report

HEALTH PORTFOLIO COMMITTEE
16 November 1999
THEFT OF PHARMACEUTICALS: BRIEFING

Documents handed out:
Illicit Pharmaceuticals, South Africa 1999 (attached to end of minutes)

SUMMARY
A member of the Medical Controls Inspectorate briefed the Committee on the theft of pharmaceuticals from both private sector and the State. He pointed out that the main issue is the ability to move bulk supplies through the South African market without adequate control measures. A proposal advanced was that a marking system should be implemented to track the supplies from the manufacturer downwards. Three areas were pointed out as requiring attention, namely, legislation, enforcement, and a hands-on solution after evaluation of both legislation and enforcement issues.

The Pharmacy Amendment Bill is scheduled to be heard in Parliament on Thursday, 18 November 1999. The Democratic Party raised an objection to the fact that the Bill would not be debated in that session and they will raise this issue at the next Chief Whips' Forum.

A tentative date for the next meeting of the committee was set by Dr Cwele for early December.

MINUTES
The Chairperson, Dr Nkomo (ANC), opened the meeting by introducing the guest speaker, Mr L. Dutton, a Medicines Control Inspector seconded to the Department of Health. The committee chair also welcomed Patricia Lombard, the special advisor to the Minister of Health, present with a listening brief. Mr Dutton sought to address problems in the control of the pharmaceutical retail chain.

He gave a broad background to the current problems existing in the industry: sanctions and disinvestment in the 1980's, the medicines 'cash and carry debacle' currently the subject of a fraud case. He also outlined the theft of military pharmaceuticals which were filtered into the private market and the petty and bulk theft from state institutions. Currently a grey market exists for illicitly procured pharmaceuticals.

Mr Dutton sought to bring the committee's attention to three issues:
- The need for legislative regulation of the pharmaceutical retail chain
- Enforcement of these regulations
- A possible 'hands-on' solution which could emerge from an evaluation of the above process.

Mr Dutton proposed that there be a push for original source procurement: by the person who registered the pharmaceutical product. He emphasised the need to improve control at the wholesale level. Throughout the session he referred to the current lack of a controlled distribution chain for bulk supplies. He emphasised that the aim of any regulation must be to get the distribution of pharmaceutical products back into a legitimate supply chain. This would also prevent sideways selling which allow the laundering of illicit stock into the market place.

He recommended that more investigative and proactive reports be funded. Lastly, he proposed that more pressure be put on government to remedy the poor proposed legislation and the poor current law enforcement. He suggested that, by consensus with the industry, a new Act be passed dealing just with the industry; an act which could include some of the useful parts of the now aborted Act 90.

Questions raised by Members:
Dr Nkomo (ANC) questioned the efficiency of current law enforcement. Mr Dutton expressed the view that in the state department environment there is insufficient staff to handle complaints. Also, in respect of policing, theft of pharmaceuticals was not a high priority.

Mr Ellis (DP) asked Mr Dutton to clarify the issue of parallel importation. Mr Ellis pointed out that the real danger in parallel importation was the introduction of counterfeit goods into the market. Mr Dutton said that if parallel importation was introduced at this point there would be even poorer control of the retail chain. The current environment is not sufficiently controlled to allow for the introduction of parallel importation.

Dr Cwele (ANC) requested more clarity on parallel importation with emphasis on the government sale of pharmaceuticals. In answer Mr Dutton reiterated that to be able to parallel-import there must be a fixed chain of control of the goods. The current environment with its perceived lack of control lends itself to counterfeiting.

Dr Gous (NNP) asked how Mr Dutton's suggestions can be effected. Mr Dutton proposed that this be a legislative issue: how to legislate for control of the supply chain either in respect of parallel importation or any matter of concern. In respect of such control Dr Gous raised a question as to the impact it would have on lateral wholesale distribution. In his answer Mr Dutton acknowledged that in practice there might sometimes be a need to move goods between manufacturers. He said that, even so, manufacturers must still be able to track the batch movement of such goods.

Dr Nkomo (ANC) brought up the question of the Theft Committee. He asked, firstly, what was the deficiency of the Committee. Secondly he asked whether the proposals made by Mr Dutton could not be passed on to the Committee. Mr Dutton was sceptical about the effectiveness of the Committee. He said that the main problem facing them was that their brief was too narrow. They deal with only one issue - theft of pharmaceutical goods - which did not include counterfeiting. This Committee was failing to address the question of the movement of bulk illicit goods.

Mr Ellis (DP) asked whether the situation of the illicit trading of pharmaceutical goods was getting worse. Mr Dutton was not able to give a precise answer. He did point out that theft from manufacturers was getting worse and thefts out of airports were increasing but ultimately there was no finite figure, given that such trade is illicit.

Dr Jassat (ANC) asked if there was any way to get buyers not to accept the illicit goods. He suggested that moral values and principles could play a part.

Ms Kalyan (DP) noted that in respect of cases brought to court the sanctions were minimal. She suggested that the system was failing and thereby giving rise to increased theft. Mr Dutton chose to answer the two questions together. He did not deal directly with the suggestion made by Dr Jassat but in answer to Ms Kalyan's question expressed the view that the onus should be back on the professional who is supposed to control the process. Mr Dutton said that people do get convicted but if he analysed some of his own work the action taken was mainly against couriers. There was seldom a conviction of the wholesalers. This was due in part to there being no method of batch tracking and the difficulty in proving a case against a wholesaler. Although heavy penalties might prove a deterrent they would still be ineffective if they were only able to convict the couriers.

Dr Nkomo asked whether the recommendations of the Theft Committee have been implemented and, if they were to be implemented, would it result in the situation improving, in the light of practices in other countries. Mr Dutton was not aware that they had been implemented but even if they were they were inadequate. He said that in some countries, particularly in the larger markets, there is legislation of the control chain.

Dr Cwele(ANC) asked Mr Dutton to expand on the issue of airport activities. Mr Dutton said that on the border posts there appeared also to be an increased volume in the smuggling of all products across the borders. It appeared that it was easy to take a product to a neighbouring country, repackage it and sell it locally.

Dr Gous (NNP) summarised what he understood by the term 'chain': the distribution from manufacturer to distributor to wholesaler to retailer to end-user. He was unclear about who would control the batch at each level in the chain. In his answer Mr Dutton said that batch control should be done through the manufacturer who must always know to whom he supplied the pharmaceutical 'bulk' to. Dr Gous asked how one would define 'bulk'. Mr Dutton did not give a definition but said that the pertinent issue was that the manufacturer is able to track any particular batch.

Ms Marshoff asked whether, if the manufacturers were not interested in establishing a chain and stopping illicit sales, enforcement would ever work. In answering this question Mr Dutton first made the point that the industry cannot police itself. However, from an ethical point of view, because they have common grounds and interests, members of the industry will confidently say that the industry will support a controlled chain.

Dr Nkomo observed that parallel importation exists in the European Community. He asked whether this bedevils policing in any way. Mr Dutton said that there was common ground between industry and state and in respect of industry the parallel import issue and the supply chain issue is not related. But, for instance if the government wanted to parallel import and there was a controlled chain such importation would be easier.

Dr Nkomo (ANC) asked a question in respect of the way forward . He asked if there was resistance to the process, either internally or due to politicisation in the industry. Mr Dutton emphasised the need for a working group. It appeared to him that there was sufficient common ground to allow for enforcement and for the formation of a working group. He also did not think that people involved in the trade would resist except for the 'bad guys'.

Dr Nkomo was of the opinion that, in respect of capacity to enforce, there were insufficient people in the inspectorate. Mr Dutton agreed that the current system was inadequate.

The chairperson of the committee thanked Mr Dutton for his input. Dr Cwele (ANC) asked members to indicate whether they would be in attendance at the next meeting of the committee on 1 December.

Dr Cwele also drew the committee's attention to the AIDS-week events happening from 1 December.

Dr Nkomo (ANC) announced that the Pharmacy Amendment Bill was before Parliament on Thursday 18 November. Mr Ellis (DP) queried the fact that the Minister had been allocated only ten minutes which would leave no time for a debate.

Dr Nkomo (ANC) pointed out that the Committee had decided in a previous meeting at which Mr Ellis was not present that there would be no debate on this Bill due to various considerations. The chairperson invited any of the members to summarise those considerations for Mr Ellis.

Mr Ellis (DP) expressed outrage that such an important Bill was not going to be debated. He said it had been agreed that the Bill would only be heard early next year.

Dr Nkomo (ANC) responded by saying that the majority of the members had voted in favour of no debate on the Bill.

Dr Gous (NNP) said that four members had voted against no debate.

Dr Cwele (ANC) said that various considerations played a part such as when all the members of the executive would be able to meet together again.

Mr Ellis (DP) said that this was an issue for the Whips Forum and he would raise it there. The meeting was then concluded.

Appendix 1:
ILLICIT PHARMACEUTICAL -DISTRIBUTION
SOUTH AFRICA - 1999 UPDATE

We have been receiving complaints from retail pharmacies for several years indicating that they cannot compete and remain profitable if they do not buy on the so-called "grey market". Manufacturers continue to complain that they find their products being offered at the wrong price by the wrong person in the wrong place and indeed having been manufactured outside the normal supply loop.

The so-called "grey market", in the main, is made up of "short line wholesalers" who are registered as wholesalers with the Pharmaceutical Council but do not usually offer a full delivery service or extensive range of products. They purportedly make a living by buying bonus/sample stock and pooling their buying resources together to negotiate additional discounts from manufacturers. They purchase some legitimate stock and offer a limited service to their customers, which subsequently allows them to smokescreen the introduction of stolen, round-tripped and counterfeit pharmaceuticals. Efforts have been made to stifle this market through the introduction of IHD and original source procurement through the National Association of Pharmaceutical Wholesalers. Further, many manufacturers have voluntarily stopped bonusing, which has had a positive effect for those bold enough to take this step.

Likewise, our own efforts have led to the closure of three shortline wholesalers, however, the businesses themselves may be closed but the individuals behind them pop up under other guises. Until earlier this year, we believed we were on track improving the control of the grey market, our biggest monetary problem was (and remains) the theft of stock from the State which is recycled into the private market place through, in the main, these shortline wholesalers. However, the volume of complaints received with regards to potential counterfeits has now risen sharply (we have over fifteen on our books) and unless a pro-active stance is taken by the Industry and Government in this regard, we foresee this situation worsening sharply and the risks involved for the Industry and the public are enormous. (Thus far we have dealt with counterfeit packaging containing "genuine" product).

South Africa has fifty-two border posts and twenty-six international airports and is part of a Customs Union of four countries, which means that the control of the influx of pharmaceuticals is exceptionally difficult. Other than through ourselves, the Industry has made no additional effort to tighten up on Customs/Border Police controls and we believe this needs urgent attention. Further, our Police Force and Medicine Control Council Inspectorate are grossly understaffed and, because of the crime epidemic in South Africa, the investigation of pharmaceuticals is not a "priority crime' in our Police Force mandate.

With the potential for parallel importation being legalised in South Africa, we believe that not only will the control problems in South Africa effect our local market, it will have a knock-on effect into our neighbours and (as has been seen in the recent counterfeiting case) may also have an effect in other markets in the world.

It is now time to look at the practicality of self-policing by the Industry, becoming substantially more pro-active in trying to ensure that the laws and regulations pertaining to the distribution of pharmaceutical' are adhered to. Initiatives are underway that may assist us in drawing up a solution to this problem. Essentially aimed at making it difficult to launder product in bulk into our local market place, whether it be parallel imported, illegal medicines, counterfeit medicines, stolen, round-tripped, hi-jacked or identified as being the State's property.

As evidenced by our reports, we manage to successfully prosecute the low level criminals involved in the theft and resale of pharmaceuticals. However, the movers behind the scene are more difficult to bring to book and we have on occasions had to resort to alternative legislation when looking for justice, taxation and Act 101 technicalities have been used in the past.

The South African situation is unique in many ways and we must find unique answers to our problems of distribution of pharmaceuticals and the security of the supply chain. The backwards movement in the supply chain, the "free stock" issue and the uncontrolled cross selling of products need attention to regain control of the market. This can only be dealt with involving legislative changes, much of which was contained in the stalled Act 90.

We advocate a joint effort between Government arid the private sector Associations aimed at urgently addressing the control of the Pharmaceutical Supply Chain, keeping this effort firmly focussed on the single issue to each role player's mutual benefit.

_______________________________

Letter to the Registrar of Medicines, Pretoria
6 July 1999

PHARMACEUTICAL SECURITY SCHEME - APPOINTMENT Of INSPECTORS
Following your request at our recent meeting. Please find below the arrest and conviction listing resulting from our actions in the pharmaceutical industry, where we have used the powers of Act 101 to assist us in actioning the cases. We have reported upon the period since early 1997 to date during which over 200 matters where handled by us leading to 45 arrests and 28 criminal convictions.

[List of cases not included]

CRIMINAL CASE UPDATE SECURITY SCHEME
Accused: James Henry
Case No: CAS 272/8/97 JHB International
Value (Rand): R85 000

Other Details
A non-professional was arrested for dealing in schedule 3 and schedule 4 medicines
and supplying these from unregistered premises.

RESULT
Conviction: Guilty
Sentence: 3 years, 2 years suspended for 5 years or R700 fine

However, what is relevant is the fact that our actions against wholesalers or bulk distributors of products have involved taxation and commercial pressure. We have not been able to convict a wholesaler because of the ongoing bastardisation of the supply chain due to bonus stock and heavily discounted stock being made available in the market place. The ability to sell back and sell across in the market place without reference to batch numbers or other control systems is our single greatest frustration in trying to clean up the pharmaceutical market place.

Due to budgetary restraint we have not been able to - follow up on all the information that has been made available to us during the period, particularly with reference to the sale of provincial stock being found in the local market place. I believe that we have potentially a much greater role to play in this regard if budget was to be made available through the Registrar of Medicines to allow for, the appropriate time to be spent on such matters.

Perhaps the greatest risk that we are facing currently is from the various attempts being made to parallel import product into the local market place, a list of the products reported recently is attached hereto. As discussed we have spent a great deal of time with Customs researching the import issues and have recommended that a data-base be drawn up. This must allow real time access to the stopping officers of the products that can maybe imported through a particular port, the description of the product, photographs, etc. and set instructions as to how these matters should be handled. This is particularly relevant at our various border post which have not information on hand currently. Our recommendation here is that Hamilton Whitton draw up such a data-base and make this available to Customs through the internet on the existing Customs valuation system, with the support of the Registrar of Medicine.

Motivation
As can be seen from this report we have used the inspectorate functions of Act 101 pro-actively to the benefit of both the State and private sector at no cost to the State. We therefore believe that this is sufficient motivation for our re-appointment in terms of the Samdra Act as inspectors to allow us to continue. Preferably we would like LO see our function expanded to allow for additional effort with reference to the problem of theft from the State.

As you are aware from previous correspondence and in this report we have several matters awaiting trial currently and we are most anxious that our bona fides as inspectors are not brought into question.

Thank you for your urgent attention hereto.

Yours faithfully
LEE DUTTON
Director

HAMILTON WHITTON