FDA Pushes for RFID Monitoring to Protect the U.S. Drug Supply

The Food and Drug Administration (FDA) today announced new efforts to step up the adoption of Radio Frequency Identification (RFID) technology by pharmaceutical companies. The FDA released a new compliance policy guide for RFID feasibility studies and pilot programs. Meanwhile, an RFID working group has simultaneously been created to monitor the adoption of RFID in the drug supply chain and address regulatory issues as they arise. Civil-liberties groups are concerned that RFID labels on prescription bottles pose privacy risks in that employers or others may be able to determine which drugs a person is carrying in his pocket. On the other hand, the FDA believes that the ability to track drugs through the supply chain has the potential to significantly reduce counterfeiting and diversion of prescription drugs by establishing an  “electronic pedigree” tracing the chain of possession of prescription drugs. 

Purdue Pharmaceuticals, producer of the narcotic Oxycontin, plans to require RFID tags on all 100-pill bottles of the drug as early as this week. Oxycontin, sometimes called “hillbilly heroine”, is the most frequently abused medication in the U.S. As early as 2001, crime rings developed solely around the business of diverting the drug from wholesalers to the black market drug trade. Meanwhile, Pfizer also announced plans to tag all wholesale bottles of Viagra as early as possible in 2005. Viagra is one of the most frequently counterfeited drugs in world, and Pfizer faces other troubles with the drug including failure to comply with FDA regulations requiring disclosure of side effects in advertisements.

RFID is a wireless inventory tracking technology expected to replace the bar code as the primary tool for retail inventory tracking and management. Wal-Mart, Target, and The United States department of defense have already pledged adoption of the technology. But, the pharmaceutical companies are a welcome addition to the list of early RFID adopters since increased use will drive the costs associated with the technology down significantly.  Currently, RFID tags cost between 30 and 50 cents each and readers go at a cost of 2,000 dollars. One company, Intermec IP Corp. holds 135 key RFID patents, and until recently planned to insist on a royalty scheme requiring semi-conductor chip manufacturers to make a $750,000 royalty pre-payment to be applied to a 5% royalty on sales. Companies manufacturing RFID inlays, tags and labels would have been required to pay $1 million in royalty pre-payments and a 7.5% royalty fee on unit sales. 

On September 3 Intermec announced a sixty-day grace period during which time it will waive it’s IP rights on 14 of it’s RFID patents and allow companies manufacturing next generation RFID components to build prototypes based on the technology. However, Intermec doesn’t seem to have strayed too far from its initial policy against allowing the cost argument to deter it from asserting it’s IP rights. Upon announcing the sixty-day free license, Intermec Vice President, Mike Wills made it clear that the company is not giving competitors an open license to manufacture products for end user consumption. The free license appears more geared toward encouraging the submission of next generation RFID technology to the standard setting body EPCglobal, which is expected to announce a decided RFID standard around January 1. If Intermec gets lucky, it’s patents will be ensconced in the chosen standard and the company will be able to revert to its previous RAND licensing scheme.