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Pharma industry flocks back to RFID; double-digit growth expected through 2015

04/05/10 | John R. Johnson | email

Remember the love affair that the pharmaceutical industry had with RFID technology several years ago? Well, pharmaceutical manufacturers are courting RFID once again.

After the typical hype curve lull, the pharma sector is once again embracing RFID to cure its counterfeiting troubles and supply chain woes. A spat of recent announcements points to a positive future for RFID when it comes to tracking drugs and preventing counterfeiting, which is rampant in the drug industry.

"There is a lot of good news out there, and most of it has happened in the last quarter," says Drew Nathanson, director of research operations at VDC Research. "Five or six years ago everyone was talking about pharmaceuticals and how large the market would be for RFID, and it never materialized. But it’s back."

There are several reasons for the turnaround. For starters, the technology has matured, with better read rates. It has overcome earlier interference obstacles with metals, liquids and foil, all common in the pharma supply chain. And with economies of scale much closer to where they need to be, momentum is again entering the market.

Sources in the marketplace predict that pharmaceutical manufacturers will consume 35 million item level tags by the end of the year, as they look to increase tagging on highly counterfeited products like Viagra and OxyContin. Nathanson believes that number will scale rapidly over the next several years as drug manufacturers have identified a stable of about a dozen counterfeit-prone drugs that will benefit from RFID. Published reports place pharmaceutical theft at $185 million last year alone.

Nathanson adds that deeper functionalities, including apps like temperature sensing, are creating new opportunities within the cold-chain by extending RFID’s value proposition. Aside from monitoring theft, temperature monitoring RFID tags and sensors can keep track of drugs that are extremely temperature sensitive, such as FluMist, for example.

According to CAEN RFID, a European supplier of UHF RFID products, the temperature of frozen goods is currently monitored with chemical indicators or hand held electronic devices. By increasing the reading distance, UHF/RFID will eliminate the need for hand held devices, and eventually provide scanners to read inside frozen food pallets. Other initiatives, like California’s e-pedigree law for drugs and the FDA’s final guidance on serialization will further drive adoption. The FDA announcement could eventually lead to RFID being used as an alternative to 2D bar codes.

Adding fuel to the fire was the recent $75 million pharmaceutical heist from an Eli Lilly distribution center in Connecticut. Seventy pallets of product were stolen, according to the Pharmaceutical Cargo Security Coalition. That incident, and a $5.5 million heist of 25,000 inhalers in 2009 should be enough to prompt most pharmaceutical security chiefs to give RFID another look.

Last week, a report in the Korea Times indicated that the Korean government will mandate that half of all the drugs sold in that country carry RFID tags by 2015, with the goal of increasing visibility and decreasing prescription errors. That’s an aggressive goal, even in a country like Korea that typically has backed RFID through government-sponsored initiatives.

In his blog, Nathanson says that the RFID market for pharmaceuticals is worth $125 million in 2010, based on conservative market models. He expects growth of 22 percent (CAGR) through 2014, and predicts that projects will be highly competitive, schedule and budget challenged, and of varying profitability.

The VDC numbers are similar to those in a report issued this month by Research and Markets, which pegged the global market for RFID products and services in the pharmaceutical industry at $112M in 2008. They expect faster growth of 34 percent yearly, for a market value of $884M in 2015.

The report, titled “RFID in Pharmaceuticals - Supply Chain Security Concerns Provides Impetus for RFID Adoption,” says that service providers are gaining market share by integrating their services with one-stop solutions. The share of hardware in the RFID market was estimated to be 60 percent in 2008 and includes tags, readers and label printers. The share of software and services in the RFID market is estimated to be 40 percent in 2008, with services including installation, integration, training, maintenance and IT support.

Among the trends the report identifies is RFID vendors continuing to offer pilot kits for the pharmaceutical industry to test and evaluate RFID technology so that clients can understand the technology’s costs and benefits.

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