Founder and Principal Consultant at 1st Line Partners.

Sean O’Hearen, 1st Line Partners

AI-Fueled Counterfeiting Surges, as Pharma Confronts Rising Digital Threats

Pharmaceutical companies are facing a rapidly escalating threat landscape as counterfeiters adopt increasingly advanced technologies—especially artificial intelligence—to produce and distribute falsified medicines. According to industry experts, AI is driving an explosive growth in fake digital infrastructure, including illicit drug-selling websites, manipulated product images, fraudulent social media accounts, and even AI-generated chat rooms on platforms like Telegram. Some pharmaceutical brands have seen a staggering seventyfold increase in fake websites within a single year, signaling the scale and speed at which these threats are evolving.

This acceleration means pharmaceutical companies must act urgently to modernize their defenses. AI enables counterfeiters to replicate branding, distort product visuals, and create convincing digital storefronts, making detection more difficult than ever. The thought leaders emphasized that while AI offers substantial benefits for the legitimate industry, it simultaneously empowers bad actors, creating complex new challenges for global medicine security.

A second major issue highlighted in the discussion is the widespread underreporting of falsified medicines. Consumers who unknowingly purchase counterfeit or unauthorized drugs online often feel embarrassed or unsure about how—or where—to report suspicious products. This lack of reporting creates blind spots for regulators and brands. Interestingly, the United States reports more incidents than many other regions, not due to higher crime rates, but because its customs systems, reporting mechanisms, and public awareness are more robust.

Looking ahead, what threats should pharma companies be preparing for as counterfeiters become more technologically advanced? Also, why has the underreporting of falsified medicines been such a prominent issue?

I think AI is driving more and more fake problems, and that includes more fake websites that are selling illicit drugs. Illicit means it could be fake drugs, or it could be unauthorized sales of prescribed medications, so I think we're really seeing an exponential rise of these websites.

For a lot of these websites for our own customers today, including pharma companies—but also just looking at everything—for some brands we have seen a 70-time increase in the number of fake websites over the course of 12 months.

From the eyes of pharmaceutical brands, I think everybody is already aware that AI has the potential to exacerbate the problem, but I think what we're seeing is that it is really getting out of control. I think pharmaceutical companies should be aware that the pace of these problems is really accelerating, and they need to invest in technology now in order to properly tackle this problem. This is not just fake websites, but also fake social media profiles. We see thousands of Telegram chat rooms being installed as we speak, and also these fake product catalogs, every image, every video, everything can be manipulated today. I think the rise of AI really comes with a lot of benefits, but also, it has a lot of side effects. I think that's something that these pharmaceutical companies should definitely be aware of.

I think there's a very significant issue related to under reporting. Obviously, it's connected to the awareness issue. But I think the consumer behavior, is that if you do go on to the internet or social media and you buy a medicine, you recognize, okay, something's wrong, either the packaging or you took it and nothing happened, or whatever the case may be, I think there's a reluctance to report that because you're almost embarrassed that you were scammed.

They just may not know where to report it. I think that's the key messaging that goes on is creating the awareness, how do I report it, and really encouraging people to report. It's interesting, too. When you look at like the PSI data, you see that in the US, surprisingly (this data is public on their website), if you look regionally, the United States has the most incidents, and people say, how is that the case? How was it not China? Well, it's because our customs regime, our defenses are better. People are more likely to report.

Videos

In a video interview with Pharma Commerce, Mark Lee, Marqvision’s founder and CEO, and Sean O’Hearen, founder and principal consultant at 1st Line Partners, warn that counterfeiters are rapidly leveraging AI to create fake websites, social profiles, and manipulated product content—outpacing traditional protections and highlighting widespread underreporting of falsified medicines.

AI-Fueled Counterfeiting Surges as Pharma Confronts Rising Digital Threats

What Your Data Can Tell You About Illicit Trade Risk

How well does your organization understand the impact of illicit trade (i.e., counterfeiting, diversion, tampering, and theft) on its products, business, and, by extension, society? Well enough to determine whether that impact is material in the same sense used in financial reporting? This would mean that there is “a substantial likelihood that a reasonable person would consider it important.”

Under the European Union’s new Corporate Sustainability Reporting Directive (CSRD), these are no longer academic or isolated questions.

 They are regulatory obligations that many pharmaceutical manufacturers and their supply chain partners need to be aware of and assess accordingly to ensure compliance.

At the heart of the CSRD is the concept of “double materiality:” financial materiality (how sustainability issues affect the company’s performance, position, and development) and impact materiality (how the company’s operations impact people and the environment). Companies must evaluate and disclose on both dimensions. Exactly what and how to report on any material sustainability issues are covered in the accompanying European Sustainability Reporting Standards (ESRS), a common reporting framework adopted by the European Commission.

While illicit trade is not explicitly named in the ESRS, if counterfeiting, diversion, tampering, or theft pose material risks to your business—or materially impact patients/consumers—you are expected to identify and disclose them.

In addition to assessing double materiality, organizations are also expected to consider risk across their entire value chain—both upstream and downstream activities—not just their own operations. Illicit trade activities drive innumerable risk scenarios throughout the pharma ecosystem, from counterfeit products undermining patient safety, to diverted medicines causing shortages in one market while fueling illegal trade in another, to cargo theft causing financial and potential reputational harm.

We know from experience that illicit goods can infiltrate legitimate supply chains at virtually any point. That means assessing suppliers, contract manufacturers, distributors, logistics providers, and even end-of-life product management. If there are vulnerabilities, they fall squarely within the scope of your double materiality assessment. Do you have a good handle on the security posture of your partners—and their partners?

At the industry level, the answer is clear. Global estimates place pharmaceutical crime in the hundreds of billions of dollars annually, with wide-ranging consequences for industry stakeholders, patients, and the healthcare system. Incidents affect every therapeutic category and every region of the world. From a financial standpoint, the cost to companies of maintaining adequate security and risk management programs, as well as the impact of lost sales, reputational damage, and legal exposure, is significant. From a societal standpoint, patient safety risks and erosion of trust weigh on our healthcare systems.

But what about your company? That is the crux of the CSRD challenge. If illicit trade is material for the industry, is it material for your organization? Many large pharma manufacturers already acknowledge illicit trade as a material issue in their sustainability reports.

 More companies will likely soon follow as regulatory deadlines approach.

Herein lies a core difficulty: illicit trade is notoriously hard to measure. Incidents are underreported. Criminal networks operate in the shadows. Comprehensive and reliable data is scarce. Without standard methodologies, companies are left to decide on their own how to quantify financial and societal impact. What metrics should be used? How should companies compare risk exposure across different geographies or product categories? How can companies benchmark their practices against others?

For small and medium-sized enterprises, the challenge is even greater. Many lack dedicated brand protection or product integrity functions. Yet CSRD expects most companies, eventually—large and small—to assess, manage, and report on illicit trade risk if it is deemed material.

CSRD also introduces assurance requirements. Auditors will be asked to verify the accuracy of a company’s sustainability disclosures, including those related to illicit trade. But, today, there is no widely accepted framework for what “good” illicit trade risk management looks like in pharmaceuticals. Unlike GxP in manufacturing and quality, no equivalent exists for anti-illicit trade practices.

That is why I believe the industry should develop the equivalent of a GxP for illicit trade risk management. Perhaps we could insert an “S” for Security (though I think “S” for Storage is already in use) or use “RC” for Risk and Compliance. A GxP-type framework would provide a foundation of standard methodologies, controls, and reporting practices for identifying, managing, mitigating, and measuring illicit trade risk. It would provide auditors with a benchmark to test against, and it would offer companies a common language and approach to demonstrate compliance and effectiveness.

Large EU and multinational companies began reporting in accordance with the CSRD as of the fiscal year 2024 (reporting in 2025). Phased adoption follows for others over the next several years. If you have not yet considered illicit trade in your materiality assessment, the window to prepare is closing.

Illicit trade is the dark side of pharmaceutical commerce—an ever-present, growing threat to patient safety and product integrity. In the past, even companies with industry-leading brand protection programs did not dedicate a lot of effort toward actually quantifying the impact of illicit trade, either in terms of financial loss, reputational damage, or patient safety impact. 

Now, the industry will need to take a closer look at the measurement challenge and gain some consensus regarding how to best answer the question: To be or not to be material? The answer may determine not only your compliance with CSRD but also your credibility as a trusted steward of patient safety.

Sean O’Hearen is Founder and Principal Consultant at 1st Line Partners.

1. SEC Staff Accounting Bulletin: No. 99 – Materiality. US Securities and Exchange Commission. August 12, 1999. 

https://www.sec.gov/interps/account/sab99.htm

2. Corporate Sustainability Reporting. European Commission. 

https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en#what

3. The CSRD (Article 5) phases in ESRS reporting in waves: Wave 1 - large public-interest entities that were already subject to the previous NFRD reporting standard from FY2024; Wave 2 - other large EU undertakings (meeting size thresholds) follow from FY2025 (delayed to FY2027 under the 2025 ‘stop-the-clock’ amendment); Wave 3 - listed SMEs

4. Europe’s Voice in Corporate Reporting. EFRAG. 

5. Consumers and End-Users (S4). EMD Group. 

https://www.emdgroup.com/en/annualreport/2024/management-report/sustainability-statement/social/consumers-and-end-users-s4.html?

Articles

Companies must assess illicit trade risks under a new EU directive, making materiality and compliance critical for sustainability reporting.

To Be or Not to Be Material? That is the Question

—from the 2019 Kentucky SURGICEL incident to counterfeit HIV drugs and Ozempic—expose vulnerabilities in the US healthcare supply chain, especially via unauthorized “gray market” channels.

Criminal networks exploit forged documentation

, fake packaging, and corrupt distributors to infiltrate regulated supply chains with dangerous products.

Despite strict regulations such as the DSCSA

, supply chain security ultimately depends on constant vigilance and strict procurement from authorized sellers.

What has become a landmark case in the annals of anticounterfeiting in the life sciences industry—one a judge described as “horrific”—began in 2019 with a neurosurgeon in an operating room at the University of Kentucky. The surgeon noticed that a medical device he had used many times before didn’t quite feel right. He was about to implant that device, an absorbable hemostat meant to control bleeding, into a patient’s body. But he stopped, because the device didn’t have the same tactile feel or texture that he was accustomed to. He rejected the device, which then led to a quality complaint to the manufacturer.

The chain of events that followed this initial “complaint” in Kentucky spanned approximately three years, involved extensive international investigations, numerous legal proceedings, and ultimately led to multi-million dollar judgments against multiple parties, as well as jail time for at least one individual involved in the major counterfeiting ring that was exposed.

Of course, this case raised many, many questions. Still, the big question was, “How did that non-sterile, potentially deadly, counterfeit product get there, in the hands of a surgeon in an operating room within the regulated US healthcare supply chain?” Unfortunately, we know that bad actors motivated by profit and with no regard for the personal harm and general havoc they wreak will find a way to break in. “Locks are for honest people,” as the saying goes.

In our increasingly complex healthcare supply chains, there will always be weak links that bad actors will target and attempt to exploit to their advantage. While we don’t have space here to address all the potential weak points, I’d like to focus on what is clearly the most exploited pathway we see and the one that factored into the University of Kentucky case, as well as many others. That is the risk of acquiring medicines and healthcare products from the secondary or gray market, particularly through unauthorized sellers and channels.

 The following cases underscore the importance of diligence and vigilance in our procurement processes.

The Kentucky case involved a product called SURGICEL, manufactured by Johnson & Johnson’s Ethicon division. The investigation revealed that the hospital had acquired the product from an unauthorized gray market distributor in Florida, via a supply chain linked to illicit traders in Dubai and Delhi. The original source of the counterfeits in Delhi, who sold at least 4,000 units, was producing the products by hand in his non-sterile apartment using run-of-the-mill surgical gauze and fake packaging. As is typical in such cases, the buyers were deceived by counterfeit pedigree documents and false assurances from the sellers.

Undoubtedly, the most significant recent case involving counterfeit drugs infiltrating the legitimate US supply chain was the 2021–2023 Gilead HIV medications case. This case was shocking for its scale and reach, as well as for the highly organized, multi-layered criminal network behind it. Before being exposed, the perpetrators managed to distribute to pharmacies an estimated 85,000 bottles of Biktarvy and Descovy valued at around $250 million. Gilead’s lawyers named more than 70 defendants in the case, including licensed but corrupt distributors, pharmacies, and individuals who were complicit in the criminal enterprise. This case also involved extensive use of forged documentation, including fake T3/pedigree documents.

Thus far in 2025, the case making news has involved counterfeit Ozempic, which has become a target of illicit traders since its market launch. In April, Novo Nordisk notified the FDA of several hundred units of counterfeit Ozempic that had been identified in the US supply chain. According to the FDA alert, these products were distributed outside of the Novo Nordisk authorized supply chain. The fake packaging carried authentic lot numbers along with fraudulent serial numbers. This case is still under investigation, so details are limited, but it shares the same issues related to sourcing medications on the gray market from unauthorized sellers.

These cases highlight risk in the US pharma supply chain, which is one of the world’s most tightly controlled. However, the issue of counterfeit medicines infiltrating our legitimate, regulated supply chains is global and, in all likelihood, growing, considering the overall increase in the manufacture and distribution of counterfeit drugs. While regulatory systems like the US Drug Supply Chain Security Act aim to close many of these gaps, the system is only as strong as its weakest link. Despite all the regulatory progress made, these cases serve as a stark reminder: vigilance at every node of the supply chain is not optional—it is the last line of defense.

1. Davis R. J&J Should Get $18M For 'Horrific' Counterfeits, Judge Says. Law360. August 2, 2022. 

https://pbwt2.gjassets.com/content/uploads/2022/06/JJ-Should-Get-18M-For-Horrific-Counterfeits-Judge-Says.pdf

2. Disclaimer: This article highlights risks associated with vulnerabilities in the secondary pharmaceutical market that may be exploited by bad actors. It is not intended as a blanket indictment of all participants in the secondary market. Many secondary distributors operate responsibly and play a legitimate role in addressing supply gaps and improving access. However, as with any complex supply chain, proper due diligence and regulatory compliance are critical to maintaining product integrity and patient safety.

https://www.safemedicines.org/wp-content/uploads/2019/09/Gilead-v-SafeChain-et-al-Fourth-Amended-Complaint.pdf?utm_source=chatgpt.com

4. FDA Warns Consumers Not to Use Counterfeit Ozempic (Semaglutide) Found in US Drug Supply Chain. FDA. April 14, 2025. 

https://www.fda.gov/drugs/drug-safety-and-availability/fda-warns-consumers-not-use-counterfeit-ozempic-semaglutide-found-us-drug-supply-chain?utm_medium=email&utm_source=govdelivery

Counterfeit drugs infiltrating the US pharma supply chain through gray market channels underscore the urgent need for vigilance.

Caveat Emptor in the Gray Market

Lack of Awareness Among Healthcare Providers. 

Despite being the first line of defense, most HCPs receive little to no training on identifying counterfeit or substandard medicines, which puts patient safety at risk.

Online Pharmacies Pose Significant Dangers. 

While more consumers and even HCPs are turning to online pharmacies for convenience or cost reasons, about 95% of these sites are illegal or unsafe, contributing to the spread of counterfeit medicines.

 Industry efforts such as the BESAFE project and global pharmacy curriculum initiatives are essential to increase awareness, improve training, and ensure safer medication practices across healthcare systems.

A global security leader I know often talks about the importance of raising awareness, not alarm, regarding the threat and risk of counterfeit and illicit medicines. The last thing you would want, he says, is to have someone fear taking their medication because they read, for example, a commonly cited statistic such as, “World police agency Interpol says more than one million people die each year from counterfeit drugs…”

Certainly, we don’t want to stoke fear, but the awareness aspect is critical, even though the risk may be low, generally speaking. It’s important as a consumer and vital as a healthcare provider (HCP) to know the basic telltale signs of a fake, along with the simple precautions people can take to ensure they are getting genuine, safe, and effective medicine. It can truly mean life or death.

Flipping the security leader’s point around, what we should be raising the alarm about, as an industry, is the serious lack of awareness on this issue, especially among HCPs, and specifically when it comes to purchasing drugs online. HCPs—doctors, nurses, and pharmacists—are a critical first line of defense in our fight against counterfeit medicines. In numerous counterfeit investigations that I’ve had experience with, an HCP has been the one who recognized that something was “off” with a product and reported it through quality complaint channels, which led to appropriate actions being taken.

HCPs are also in a position to advise patients of appropriate precautions to take when acquiring their medicines.

I first got the sense that awareness among HCPs was not what it should be when, a few years back, I met the head of professional education for all nurses of a major European healthcare system. She told me that nurses there received no formal education or training on the topic of counterfeit and illicit drugs. Then, recently, I read a report from the Johns Hopkins Bloomberg School of Public Health

 that highlighted the knowledge gap that exists among HCPs in the US regarding this issue. The data point that caught my attention was that “Only 2% of HCPs are trained to identify substandard and falsified (SF) [i.e., counterfeit] drugs and counsel patients about safe prescription acquisition procedures.” The report also cited a survey that indicated that “more than 80% of US HCPs do not consider SF drugs a serious concern.”

Raising the alarm even higher is the fact that more consumers are buying medicines online, a market shift that occurred during COVID-19 and has continued to persist and grow.

 We know this practice can be very risky due to the proliferation of counterfeit and illicit drugs online and the easy access that the internet affords. Since 2017, the Alliance for Safe Online Pharmacies has been reporting that roughly 95% of online pharmacies are illegal or unsafe.

Yet, there is a growing perception that buying medicines online is safe. It’s no longer just patients turning to the internet in desperation. Increasingly, I’ve read reports and heard anecdotally that HCPs themselves are recommending online pharmacies, especially Canadian ones, to help patients sidestep high drug costs or supply chain disruptions. While well-intentioned, this normalization of online drug buying, especially outside of regulated channels, poses serious dangers for patient safety and public health.

To the average person, many of these sites appear to be legitimate—complete with sleek design, fake seals of approval, and customer reviews. It seems we have some serious work to do to ensure that people understand how to purchase medicines online from safe and reputable sources—the Alliance for Safe Online Pharmacies offers resources to assist with that under their “Find Safe Online Pharmacies” section.

The good news is that major initiatives and alliances, such as the BESAFE project at Johns Hopkins, which is sponsored by Pfizer; the FIP & WHO Pharmacy Curriculum Guide on Substandard and Falsified Medicines; and the Partnership for Safe Medicines, to name a few, are focused on raising awareness; improving education and training among HCPs; and promoting advocacy on this important issue. As an industry, we need more support and funding for initiatives like these to help safeguard patients and consumers and preserve public trust in our healthcare system. 

1. Southwick, N. Counterfeit Drugs Kill 1 Mn People Annually: Interpol. Insight Crime. October 24, 2013. 

https://insightcrime.org/news/brief/counterfeit-drugs-kill-1-million-annually-interpol/

2. 2024 Symposium on Public Health Strategies to Combat Substandard and Falsified Drugs. Johns Hopkins Bloomberg School of Public Health. 2024. 

https://fakemedicinenomore.org/2024-besafe-symposium/

3. ASOP Global Releases Survey Noting Consumers Are Increasingly Purchasing Medications Through Online Pharmacies. National Association of Boards of Pharmacy. February 5, 2024. 

https://nabp.pharmacy/news/blog/regulatory_news/asop-survey-purchasing-online-pharmacies/

4. Alliance for Safe Online Pharmacies homepage. Alliance for Safe Online Pharmacies. 

5. Alliance for Safe Online Pharmacies’ “Find Safe Online Pharmacies” tab. Alliance for Safe Online Pharmacies 

https://buysaferx.pharmacy/find-safe-online-pharmacies/

Healthcare providers must enhance awareness of counterfeit medicines to protect patients, especially as online drug purchases rise.