PharmaSecure Combats Drug Counterfeiting, Armed With Funding From Eric Schmidt’s Innovation Endeavors

Xconomy Boston — 

Nathan Sigworth was studying economics at Dartmouth College a few years back when he became fascinated with the problem of counterfeit drugs in developing countries. Plenty of technology had been developed to combat counterfeits—RFID tagging and the like—but it wasn’t affordable enough to be scaled up in places like India. “The technology that was out there hadn’t made it to the markets that needed it the most,” Sigworth says.

So in 2007, the same year he graduated from Dartmouth, Sigworth founded PharmaSecure with his classmate Taylor Thompson. The company equips drug manufacturers with machines that print unique bar codes and serial numbers on drug packaging. Consumers can then send those codes by text message to a number printed on the package, and they’ll get an immediate text confirming whether the drug is authentic or not. PharmaSecure also aggregates data on the texted authentications and sells it to drugmakers.

On October 24, PharmaSecure closed a $3.9 million investing round from Innovation Endeavors—the fund led by former Google CEO Eric Schmidt—along with Gray Ghost Ventures, Healthtech Capital and TEEC Angel Fund. It had formerly raised $2 million in 2009 from Life Science Angels.

PharmaSecure started up in Lebanon, NH, but is in the process of moving most of its U.S. operations to San Diego, where it houses much of its technology team. The company also has a large operation in New Delhi, India, where it has so far secured deals to print authentication codes on 100 million drug packages. Sigworth estimates that PharmaSecure will also be printing its codes on 1.5 billion drugs that are exported from India to other countries.

Drug counterfeiting is a huge problem in the developing world. The World Health Organization estimates that 25 percent of drugs purchased in developing countries are fakes. Counterfeiting, which is estimated to be a $200 billion-a-year industry, puts patients’ lives at stake, and also threatens the reputations of drugmakers, Sigworth contends. His product, he says, “gives [drugmakers] the opportunity to really understand what’s happening in the distribution process and to assuage the fears of their consumers.”

PharmaSecure has benefitted from good timing. The company launched its first product in India in 2009. Then, in January of this year, the Indian government mandatedthat all drug manufacturers there start putting serial numbers on products they ship to other countries, with a final deadline of July 2012. “We were in a really good place to take advantage of that regulation,” Sigworth says. “We’ve seen a huge amount of growth just in the last six months.”

Sigworth first discovered the harsh realities of health economics in India during his freshman year, when he spent a month volunteering at a hospital in a poor district of Uttar Pradesh. One day, a patient came in after having been bitten by a viper. “Instead of giving him the $12 anti-venom serum, they paid someone to watch the patient for 12 hours,” Sigworth recalls. “It was cheaper to do that. He got better on his own. I was fascinated by how differently healthcare is delivered in a place where labor is cheap and [drugs] are considered expensive.”

Even when a drug is cheap, drugmakers in India balk at paying a lot to ensure its authenticity. Sigworth offers tuberculosis drugs as an example. “These are lifesaving drugs that cost about 25 cents each,” he says. “You can’t put an expensive RFID tag on that.” Sigworth says he and his launch team spent much of their time in the early days of the company figuring out how to provide a solution that could be scaled up with very little capital commitment on the part of drugmakers.

PharmaSecure charges drugmakers per unit or per product line for the authentication codes. The typical code reads something like this: “SMS gejr887zd to +91 99010.99010 for drug authenticity.” Consumers who send the codes in for authentication aren’t charged anything beyond the normal texting fees they pay to their cellular providers.

While at Dartmouth, Sigworth and Thompson worked on a group research project with a fellow student, Ashigi Gogo, on the topic of drug counterfeiting. Gogo went on to found a company called Sproxil, which is also working on ways to combat the problem. Sproxil launched its text-based authentication codes in Nigeria in 2010 and is expanding in Africa.

With the recent financing, PharmaSecure is gaining a board member in Dror Berman, founding managing partner of Innovation Endeavors and a veteran of Yahoo.

Sigworth says PharmaSecure plans to use the new funding to expand its geographic reach and product lines. Key targets geographically include Southeast Asia, Latin America, and Eastern Europe, he says.

The company is also working on developing new products based on the data it is collecting from consumers. Sigworth believes that information may help drugmakers solve problems that they otherwise wouldn’t even know they have. “If you’re in Poland and you see all your authentications are coming from Warsaw, you know your distributor isn’t working hard enough to penetrate other parts of the country,” he says. The company is also looking into providing medication reminders to patients to ensure they continue taking their drugs until they finish. “The public health benefit and the benefit to the companies could be very large,” Sigworth says.

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2 responses to “PharmaSecure Combats Drug Counterfeiting, Armed With Funding From Eric Schmidt’s Innovation Endeavors”

  1. i had the opportunity to experience this counterfitting up close when i spent 7 months in the philippines. it runs rampant in 3rd world countries.