RFID Providers Get Boost from FDA Ruling

Tired of waiting for pharmaceutical companies to improve counterfeit-drug screening, the U.S. Food and Drug Administration (FDA) said last week it will require them to use electronic tags to track products from factory to pharmacy.

The new rule could create business opportunities for technology firms from chip makers to database software. Both Sun Microsystems and Microsoft last week announced new initiatives to support radio frequency identification (RFID) networks.

Sun opened a product testing lab for RFID tags and sensors in Longmont, Colo. The division enables Sun customers such as the Coors Brewing Co. to test RFID tags in harsh environments and to ensure they meet industry standards.

Meanwhile, Microsoft said it would launch its BizTalk Server 2006 R2 supply chain management product in the first half of 2007, enabling companies to integrate their enterprise software with RFID databases. Microsoft also said it would partner with RFID hardware makers like Alien Technology, Intermec and Paxar.

RFID tags are thin antennas as small as a postage stamp, programmed to store data, from a simple serial number to an entire cargo manifest. But until now, the high price of RFID tags has kept most companies from using them on anything smaller than entire crates or pallets of goods.

Only retail giants like Wal-Mart Stores and Target Brands have had the necessary sales volume to make RFID tagging profitable. Proponents say tags will get cheaper as demand rises. That process will accelerate in 2007, the U.S. Department of Defense’s deadline for all military suppliers to mark their goods with tags.

That could help trigger fast growth. Worldwide RFID spending totaled US$504 million in 2005, and is scheduled to grow to $751 million in 2006 and reach $3 billion by 2010, according to the analyst firm Gartner.

The trend will continue as the FDA said it would push RFID regulations into the pharmaceutical sector. By December, drug manufacturers will have to use electronic tracing technology such as RFID tags to track their most expensive prescriptions through the supply chain.

Regulators have been threatening to impose the new rule for years, but in early 2004, the FDA delayed the regulation to give pharmaceutical companies time to adopt the technology on their own terms. That never happened.

The agency is acting now because the number of fake drugs has risen rapidly in recent years, jumping from a mere four to 10 cases per year before 2000 to an average 22 fakes per year ever since, said Paul Chang, an associate partner at IBM’s global business services division.

IBM makes middleware that enables databases to store and share data. The system can collect data from any brand of physical RFID tags or readers.

“It is a problem because of the convoluted supply chain; a drug can change hands 10 times before it ends up at your pharmacy,” Chang said.

The rising cost of prescription drugs has already tempted counterfeiters; worldwide, 8 percent of all drugs are frauds. As the cost of RFID tags begins to fall, more companies will suddenly say electronic tagging is profitable.

“The cost of RFID tagging would be significant if tracking something as cheap as a roll of paper towels, but compared to expensive drugs, it is just part of the packaging,” he said.

For more information on RFID, read Drugmakers Testing RFID Tags and What’s Your Frequency.

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By Ben Ames, IDG News Service (Boston Bureau)