The pharmaceutical industry lives with a recurring nightmare: Counterfeit, diluted, or falsely labeled drugs make their way through the United States health-care system, posing a health threat to patients and a financial threat to drugmakers and distributors. That's why the industry and federal regulators have begun looking to emerging business technologies, including radio-frequency identification tags and electronic product codes, known as EPCs, to help stem the wave of counterfeit drugs and better track legitimate drugs from manufacturing through the supply chain.

"The industry itself is driving the move toward the new technology, not just for security reasons but also for good business practices," says John Taylor, the Food and Drug Administration's associate commissioner for regulatory affairs and co-chair of the FDA Counterfeit Drug Task Force.

The drive to adopt new technologies got a boost last week when the FDA's task force issued a preliminary report that outlined ways business technology, regulatory requirements, security, and industry collaboration can be used to make sure consumers get the medicines they need, rather than watered-down or repackaged rip-offs. The task force, which will hold its first meeting later this month, devoted a substantial portion of the report to the benefits of attaching EPC messages--96-bit product "license plates" that would identify a manufacturer, describe the type of product, and include a unique serial number--and RFID transmission microchips to pallets, cartons, and products. Standards for RFID, including the EPC messaging standard, are being developed by the Auto-ID Center, a partnership of business and research universities, including the Massachusetts Institute of Technology.

It's a life-and-death issue, both for patients and pharmaceutical companies. A person stricken with cancer or AIDS who's prescribed Johnson & Johnson Corp.'s Procrit can develop an infection of the bloodstream if the potency of the drug is diluted. Patients who are supposed to take Eli Lilly & Co.'s Zyprexa to treat schizophrenia or acute bipolar disorder can experience a serious allergic reaction if they're given aspirin in a falsely labeled bottle instead. The FDA has documented attempts by counterfeiters to introduce bogus versions of these drugs into the distribution network.

The threat is growing. Agents from the FDA and U.S. Customs Service intercepted international shipments of medicine this summer and found that 88% of those drugs weren't approved for use in this country. The FDA doesn't have specific figures on the amount of counterfeit drugs on the market, but its drug investigations have increased to more than 20 per year, having averaged only five per year through the late 1990s. The agency doesn't believe that widespread domestic counterfeiting is taking place but says that up to 40% of pharmaceuticals shipped from countries such as Argentina, Colombia, and Mexico may be counterfeit.

Johnson & Johnson takes the issue so seriously that it's committed to using some form of anti-counterfeiting technology on all its pharmaceutical products by early next year. Earlier this year, its Ortho Biotech Products LP subsidiary, working with the FDA, found that counterfeiters had replaced the $240 high-dose version of Procrit with a low-dose version of the drug that sells for $30.