In recent years, U.S. regulators, patients and drug companies have acknowledged that fake drugs have made their way into the country's drug supply.It remains unclear how many of these bogus drugs are made by U.S.-based counterfeiters and how many arrive here via drug reimportation from Canada, Mexico and other countries.This much is clear:

The problem is big enough to prompt drug makers to begin testing radio frequency identification (RFID) tags, which are affixed to bottles of medicine.These electronic tags will let drug firms, wholesalers and pharmacies authenticate drugs sold in the U.S. It'll also aid the Food and Drug Administration in its efforts to crack down on bogus drugs.When the tags are affixed to bottles of medicines, the drugs can be electronically scanned everywhere they go — from the manufacturing plant to wholesale centers and retail pharmacies.

"We encode every RFID tag with a unique ID number," said Bill Allen, director of marketing for RFID at Texas Instruments, which is working on pilot projects with several large drug makers."The code is embedded in the transponder and can't be changed," Allen said. "Data encryption schemes prevent someone from just reading the tag. You can also build in other safety features to lock out those who shouldn't have access to the tag identity.

"Privately held Purdue Pharma, which makes narcotic painkillers OxyContin and Palladone, launched its RFID-tagged bottles earlier this month. Purdue is working in partnership with Symbol Technologies, which makes RFID tags, readers and antennas, as well as software firm SAP AG of Germany.Several large drug makers, including Pfizer and GlaxoSmithKline, plan to do the same with certain drug brands by December 2005 and mid-2006, respectively. It'll cost each firm several million dollars to implement the program.The cost doesn't seem to bother company officials

."There are benefits," says Pfizer spokesman Bryant Haskins. "RFID would also enable us to more effectively recall products, if that became necessary, because it's an electronic pedigree system. We'd also get benefits from inventory control."Pfizer will tag its bottles of Viagra first because the brand is among the biggest targets of counterfeiters. Afterward the firm will decide whether to put tags on its other drugs.Legal issues are part of the reason drug firms are considering RFID tags.

However, thus far, manufacturers have not been successfully sued.An example occurred in 2002, when Timothy Fagan of Deer Park, N.Y. underwent an emergency liver transplant.Afterward, Fagan, then 16, took weekly injections of what he thought was Amgen's anemia drug Epogen for two months before he and his family learned the drug was a fake and contained 1/20th the strength of the real Epogen

.Fagan's family sued Amgen, which makes Epogen; drug store chain CVS Corp., where they bought the drug; and wholesaler AmerisourceBergen, which supplied CVS.A federal district court judge recently ruled that Amgen couldn't be held liable because a drug manufacturer doesn't control the drug after it sells it to the wholesaler.

Other potential benefits of RFID tags are that they provide for better supply chain management and help law enforcement officials crack down on criminals."Never before in our industry have we been able to distinguish counterfeit from authentic goods," said Aaron Graham, vice-president and chief security officer at Purdue, who previously held the same job at Pfizer and Bristol-Myers Squibb.

"In the past, all we could do was say, 'Send me your bottle of potentially counterfeit drug and we'll test it in the lab.'"Graham, a former senior special agent for the Drug Enforcement Administration and the Food and Drug Administration, says the RFID tags help agents track criminals."If some bad guy tries to sell drugs to a wholesaler and the wholesaler tries to scan an RFID chip back to me, that data will show me that those bottles are wrong," he said.

"I can tell the wholesaler, 'We didn't make that product. You have suspect contraband or counterfeit goods in your possession.'"This gives him time to contact drug regulators and authorities before the criminals become aware they're being traced.RFID is new to the drug industry, but not new to large retailers.

Last year, Wal-Mart Stores set a January 2005 deadline for its top 100 suppliers to put RFID tags on cases and pallets destined for Wal-Mart and Sam's Club stores in the Dallas/Fort Worth area. Many of its suppliers already are test marketing the tags.Though RFID tags clearly have benefits for companies and patients, they're not likely to create much of a stir on Wall Street."It's really a benefit for patients because it minimizes or eliminates any form of counterfeiting," said Lehman Bros. analyst Tony Butler.

"I don't know how it would benefit investors. If it did, it would be marginal because the amount of current counterfeiting, while it exists, is not (perceived to be) terribly high."