By Anne Pritchett
According to the Department of Homeland Security, counterfeit drugs “threaten national security and public safety directly when introduced into government and critical infrastructure supply chains, and indirectly if used to generate revenue for transnational criminal organizations.” Furthermore, counterfeit drugs harm pharmaceutical innovation by eroding profitability and investor confidence, which reduces the incentive for companies to fund costly research and development (R&D). This happens because counterfeiters steal profits through intellectual property (IP) infringement, while the overall market damage from counterfeits can lead to lower sales, higher costs for legal and security measures, and damaged brand credibility.
While there are efforts by U.S. biopharmaceutical companies and the federal government to combat counterfeit drugs and strengthen supply chain security, further policy actions must seek to address the growing national and international threat posed by counterfeit pharmaceuticals.
What Makes Counterfeit Drugs a Global Health and Economic Threat?
Counterfeit drugs are products deliberately and fraudulently produced and/or mislabeled with respect to identity and/or source to make them appear to be genuine product. Nearly all counterfeit drugs are potentially injurious to patient health; counterfeit drugs may contain no active pharmaceutical ingredient (API), an incorrect amount of API, an inferior-quality API, a wrong API, contaminants, toxins, or repackaged expired products. In some cases, counterfeit drugs have been found to contain harmful and even deadly toxins including fentanyl, mercury, lead, aluminum, arsenic, rat poison, antifreeze, floor wax, house paint, road paint, and paint thinner.
The World Health Organization (WHO) estimates that there are approximately one million deaths annually attributable to counterfeit drugs. Counterfeit drugs also negatively impact U.S. economic competitiveness and undermine the reputations and trustworthiness of U.S. products and manufacturers. The size of the counterfeit drug market is estimated to range from $200 to over $400 billion a year globally. The National Association of Manufacturers estimates that counterfeit products across sectors resulted in a loss of $320 billion to the U.S. economy in 2021 alone. The revenues generated for criminal organizations imposes large costs on businesses, their investors and workers, the U.S. economy and public health.
How Widespread Is the Problem of Counterfeit Drugs?
Counterfeit drugs are estimated to make up less than 1% of those sold in U.S. “brick and mortar” pharmacies, according to the U.S. Centers for Disease Control and Prevention (CDC). However, the increasing use of online pharmacies has widened the global market for falsified drugs. Startlingly, the WHO estimates that over 50% of medicines purchased from online pharmacies – many of which are illegal international fronts and/or do not comply with patient safety and pharmacy practice standards or U.S. state and federal laws – are counterfeit.
Counterfeiters often prey on patients’ interest in lower cost medicines. These are consumers who either cannot or prefer not to access a health care provider for a prescription or need to access medicines that are in short supply. Counterfeiters are known for taking advantage of situations where a particular medicine may be in shortage.
Legitimate prescription medicines are:
Counterfeit medicines are often purchased without a prescription and from international sources through fraudulent websites or pop-up ads on social media. FDA inspections of packages delivered via mail suspected to contain drug products at U.S. international mail facilities have revealed that as much as 87 percent contained “illegal, unapproved, counterfeit and potentially dangerous drugs.”
How Do Counterfeit Drugs Undermine the U.S. Economy and Innovation?
Counterfeit drugs not only endanger patient safety but also erode the foundations of the U.S. innovation economy. These products divert revenues, weaken IP protections, and damage brand trust. Counterfeit medicines directly reduce incentives for biopharmaceutical R&D and jeopardize the United States’ global leadership in life sciences innovation.
Biopharmaceutical companies must also contend with the threat of counterfeits to their business. Companies in all industries rely on rules protecting IP to safeguard their ideas and products against counterfeiting, piracy, and theft and to forge international partnerships. To this end, the United States and its partners have long invested in a system of multilateral treaties and international organizations to ensure a stable and effective IP system that balances innovation incentives with public access.
IP rights play a key role in incentivizing innovation by providing manufacturers a time period in which to recoup their often substantial R&D investments and earn a return to invest in additional R&D. Drug counterfeits directly undermine these protections — stealing IP and revenues from biopharmaceutical companies, reducing resources available for R&D, and discouraging future investment in high-risk therapeutic areas. While strong IP protections allow innovators to take legal action against those producing and marketing counterfeit drugs, there are significant costs and challenges involved in the legal process, particularly given the challenges inherent in disrupting and prosecuting multi-national drug trafficking organizations.
Biopharmaceutical companies often spend a decade or more and invest an average of $2.6 billion to develop each new medicine. While the loss of income to these companies is a significant consequence of drug counterfeiting, the challenges in differentiating counterfeit drugs from legitimate medicines results in ineffective and potential dangerous effects of counterfeit drugs results in harmful effects on patient health and erodes public trust in legitimate medicines, negatively impacting the reputation of brand or innovative medicines. According to one study in 2020 from the Pacific Research Institute:
How the Private Sector Can Combat Counterfeit Drugs
U.S. biopharmaceutical companies prioritize and make substantial investments to combat counterfeit medicines. Companies maintain global security departments and product integrity programs tasked with monitoring, identifying and interrupting counterfeiting schemes wherever possible. They conduct proactive threat assessments and investigations to help mitigate safety threats, and respond to reports of counterfeiting, adulteration, or diversion of their own products, and work closely with law enforcement and regulatory agencies internationally. For example, companies work closely with law enforcement partners across the United States and around the globe including the International Criminal Police Organization (INTERPOL), which leads the so-called “Pangea series” of multi-agency and multi-national enforcement actions targeting international counterfeit medicines trafficking.
Biopharmaceutical companies also engage in a range of collaborative efforts with different stakeholders to tackle the counterfeiting problem. More than 40 leading biopharmaceutical companies joined to create the Pharmaceutical Security Institute, which is a 20-year collaborative effort focused on addressing international counterfeiting threats through information sharing and engagement with appropriate law enforcement authorities. Biopharmaceutical companies also support efforts such as the Partnership for Safe Medicines, which is a group of organizations operating to protect consumers through timely alerts and safety information, as well as partnerships such as Fight the Fakes Alliance, a multi-stakeholder non-profit which raises awareness about falsified/substandard medicines proliferation.
The industry is also utilizing emerging technologies to further protect their supply chains, including blockchain technology to increase visibility into supply chains and reduce the risk of counterfeit medicines. Companies are also leveraging artificial intelligence tools to detect counterfeit drugs through analysis of online websites to detect fraudulent sites and products. AI can scan hundreds of online marketplaces and social media channels to detect fraudulent sites in real time and engage with law enforcement authorities to take down rogue websites before counterfeit drugs can reach patients.
How Do Counterfeit Drugs Enter the Supply Chain?
Companies employ a range of policies and procedures designed to keep the legitimate drug distribution system safe and secure. Supply chain protection techniques include terms and conditions of sale through authorized distributors, security features embedded in product packaging and forensic detection capabilities (to test suspected counterfeit products). Companies continue to implement key features of the Drug Supply Chain Security Act (DSCSA). The DSCSA introduced a nationwide system for pharmaceutical traceability, establishing a comprehensive framework for tracking and verifying prescription drugs at the package level. The act mandates manufacturers, wholesalers, re-packagers, and dispensers adopt enhanced product tracing, verification, and serialization requirements.
These measures help prevent counterfeit drugs from reaching consumers as well as limit supply chain access to authorized entities. The majority of counterfeit and substandard drugs originate from mainland China, Hong Kong, Singapore, and India. Counterfeiting is facilitated in countries where there are weak drug regulatory controls and enforcement, relatively unregulated markets and distribution chains, and a lack of robust intellectual property protections. The Drug Enforcement Administration (DEA) and others report that an increasing number of fake pills laced with fentanyl are being produced by Mexican and domestic drug trafficking organizations operating in the U.S., with precursor chemicals and drugs sourced from China and/or Mexico. Although the Chinese government banned fentanyl and its analogues in 2019, Chinese-based illicit manufacturers continue to operate and ship precursors to Mexico and elsewhere.
The Partnership for Safe Medicines analyzed U.S. Customs and Border Patrol data from earlier in 2025 finding that hundreds of pharmaceutical shipments that entered the U.S. came from unregistered exporters in China and other countries as well as from alternative medicine clinics abroad. Shipments of concern included tirzepatide– a prescription medication approved to treat type 2 diabetes and to assist with chronic weight management in adults with obesity– from a company that has since been added to the U.S. Food and Drug Administration (FDA) import alert list, as well as found chemotherapy and psychiatric drugs mislabeled as antibiotics which were later found to have entered the United States. The shipments of tirzepatide originated from unregistered facilities in China, Hong Kong, and India. These shipments raised significant concerns leading to a letter from 38 state attorneys general calling on the FDA to “exercise its statutory authority through investigations, inspections, and enforcement actions to safeguard consumers.”
How Policymakers Can Address the Counterfeit Drug Problem
Suspend duty-free de minimis treatment for low-value shipments: The Trump Administration has increased its focus on addressing counterfeit drugs, particularly fentanyl-laced counterfeit drugs, produced in Mexico with precursor ingredients from China, which pose a growing U.S. public health and national security threat. A July Executive Order suspended duty-free de minimis treatment for low-value shipments with the intent of eliminating a loophole that the administration identified as a contributor to synthetic opioids and counterfeit and substandard medicines entering the United States. The elimination of this loophole was later made permanent. President Trump also signed into law The HALT Fentanyl Act, which adds fentanyl derivatives to Schedule I, which establishes a mandatory, 10-year minimum sentence in prison for trafficking of fentanyl derivatives.
Disrupt and dismantle drug trafficking organizations: The DEA has also implemented several operational surges to disrupt and dismantle drug trafficking organizations including designating cartels as Foreign Terrorist Organizations. Earlier this year, the DEA led a multi-agency law enforcement operation to disrupt the Jalisco New Generation Cartel (CJNG) seizing 92.4 kilograms of fentanyl powder, 1,157,672 counterfeit pills, 6,062 kilograms of methamphetamine, 22,842 kilograms of cocaine, and 33 kilograms of heroin and also seized hundreds of illicit firearms, currency, and assets.
Focus on the use of social media in organizing related criminal activity and in distributing counterfeit drugs: The Department of Justice in collaboration with other federal law enforcement agencies should assess whether legislative changes are needed to ensure that social media and e-commerce platforms are policed for illicit drug sales, shutting down dealers’ accounts, sharing information with law enforcement, and redirecting drug seekers to addiction services. The Justice Department should collect and report on data on crimes involving social media and engage with local law enforcement to ensure that cases in which a social media platform is suspected to have been involved in transactions involving counterfeit drugs is captured to provide a sense of the scope of the problem and to track trends over time.
The National Association of Boards of Pharmacy, Alliance for Safe Online Pharmacies, the American Pharmacists Association, the National Community Pharmacists Association, and the Partnership for Safe Medicines among others have called for legislation that would require registrars and registries to take down websites that illegally offer prescription medicines, controlled substances, and unapproved medical products in violation of the Federal Food, Drug, and Cosmetics Act, upon notification from trusted entities such as the FDA, Department of Justice, and a range of other law enforcement entities.
Strengthen penalties to permit the forfeiture of the proceeds of cryptocurrency fraud and manipulation: Since criminal organizations involved in producing and distributing counterfeit drugs launder their proceeds in part using digital currency and bypass currency restrictions and reporting requirements, policymakers should consider strengthening penalties to permit the forfeiture of the proceeds of cryptocurrency fraud and manipulation, increase Sentencing Guidelines according to the scale of funds laundered or transferred, and provide additional resources for increased oversight of financial transactions.
Expand interagency efforts to detect and prosecute counterfeiters and increase resources for cross-border investigations: As an example, in 2018, principals in a Chinese drug trafficking organization were indicted for operating a conspiracy that manufactured and shipped deadly fentanyl analogues and cannabinoids to at least 37 U.S. states and 25 countries. The drug trafficking organization laundered its drug proceeds in part by using digital currency such as bitcoin, transmitted drug proceeds into and out of bank accounts in China (including Hong Kong), and bypassed currency restrictions and reporting requirements.
Given the growing threat and impact on public health and U.S. economic and national security, a suite of new public policies and foreign policy tools are clearly needed to combat counterfeit medicines. While international law mandates strong IP enforcement and border measures to combat counterfeit medicines, U.S. trade policy should order efforts to increase cross-border customs cooperation and information sharing to combat counterfeit drugs.
Anne Pritchett is a senior associate (non-resident) with the Renewing American Innovation at the Center for Strategic and International Studies (CSIS) in Washington, D.C.
This piece was originally published on November 19th with the Renewing American Innovation Project at the Center for Strategic and International Studies in Washington, D.C.
