How Packagers and Producers Can Avoid Pharmaceutical Theft

By David Restaino
Fox Rothschild LLP

Reports of pharmaceutical theft continue to make the news. Such thefts occur in all aspects of the processing and packaging chain. For example, late last year thieves stole a truck carrying several million dollars’ worth of drugs. Thieves have also been known to enter warehouses from the roof, disable the alarms, and load tractor-trailers with drug samples. The pharmaceuticals targeted in recent thefts fall into three general categories: high-value drugs, widely used drugs, and drugs with a potential for abuse.
 

The savvy producer should consider supply-chain vulnerabilities when assessing risk-management protocols. This can help to avoid theft in the plant, in the warehouse, and during transit. Packagers, on the other hand, can expect these issues to be “pushed down” the supply chain. Absent thoughtful review, packagers may find themselves shouldering more liability than anticipated.
 

Each situation differs. But both packagers and producers should consider these questions when assessing the breadth of their risk management protocols:
 

Security

•    Have you predetermined the target, or the point at which a loss is most likely to occur?
•    Have the risk factors associated with the product involved been fully evaluated?
•    How effective are your security precautions, including personnel, alarms, locks, and vaults?
•    Would the effectiveness of your measures be evaluated differently if controlled substances were involved, and have you considered whether the layers of security appropriate to protect one product from theft are sufficient to protect a more vulnerable item?
•    Have you thought about nonroutine and nonstatic security planning?
•    Are you using information technology as an aid to prevent unauthorized entry to designated areas or shipments?
•    Have you considered transit routes and taken measures to avoid areas for which current information shows higher than usual thefts, e.g., certain trucker rest stops?

Contracts
•    Do your contractors have a person specially assigned to risk management?
•    What is your process for screening new contractors (e.g., financial status and whether the provider has adequate finances to actually perform the promised security work)?
•    Does your screening process include a review of your contractors’ prior claims history?
•    Is there a way to assess your contractors’ hiring practices to better ensure security, or will that be entrusted to a combination of the contractors’ goodwill as “back-stopped” by insurance?
•    What do your contracts say about apportioning liability, and how do they address ownership of goods while in storage or transit?

Purchase Orders and Bills of Lading

•    Have you ever read these documents and, if so, do contractors’ or shippers’ purchase orders and bills of lading, including the “standard terms and conditions” on the reverse side, alter or amend the applicable contracts?

Insurance 
•    To what degree would the theft of goods be covered by contractors’ insurance, and are the coverage amounts in line with the value of the goods?
•    Is supply-chain disruption coverage needed?
•    Whose insurance would be considered as the “primary coverage” in the event of a loss?
•    Are you listed as an “additional named insured” under all contractors’ insurance policies?

Ancillary Impacts 
•    Have you considered what you would do if stolen drugs were returned after their expiration, along with a request for compensation?
•    Are you prepared to deal with a consumer injured because a stolen drug, long since expired, is no longer effective for its intended purpose?

An integrated approach is essential and will involve dialogue about how liability can be minimized and about who retains the liability. Making informed decisions to prioritize potential impacts can help packagers and manufacturers determine their preparedness and evaluate risk management strategies that will protect the corporate bottom line.

David Restaino is a partner at Fox Rothschild LLP (609/895-6701 or drestaino@foxrothschild.com).