NORTH READING — The scourge of counterfeit prescription drugs, which have sickened patients and bedeviled health officials worldwide for decades, has led to a global crackdown — and a multibillion-dollar opportunity for Shabbir Dahod’s software startup.
A three-year-old US law requires drug makers and their contractors to begin tracing shipments of medicines by November 2017. As the pharmaceutical companies scramble to comply, technology vendors are developing tools to help them document the paths of drugs from manufacturers to distributors and dispensers and then to the pharmacies that sell them.
Dahod’s company, TraceLink Inc., is preparing to capitalize on the Drug Supply Chain Security Act, passed in 2013 along with similar laws and regulations taking effect in coming years in Europe, China, Japan, and several other places. The tracking will start with large lots of drugs shipped on pallets in the United States, but by 2023 it will extend to smaller containers, and distributors will have to plug into interconnected networks.
“It’s about putting an identity on each individual product and tracking it through the supply chain so you know the chain of custody,” said Dahod, 53, TraceLink’s chief executive.
Federal and state officials have been battling counterfeiting that often involves second- or third-line distributors selling watered-down or unapproved medicines, causing sickness and death in some cases.
In a 2014 case, the Justice Department won indictments of executives at Pharmalogical Inc., a Great Neck, N.Y., distributor doing business as Medical Device King, for selling counterfeit versions of the cancer drug Avastin to dozens of clinics, including 10 in Massachusetts.
Monitoring compliance with the new US law will be the Food and Drug Administration, which approves and regulates prescription medicines.
“One of our top priorities is to protect patients from unsafe medicines,” said Ilisa Bernstein, deputy compliance director for the FDA’s Center for Drug Evaluation and Research. “We want to further tighten the supply chain so we can keep good drugs in and keep bad ones out. The goal is to have accountability and transparency throughout the supply chain.”
Dahod has been focusing on “track-and-trace” technology for about 15 years. His first company, SupplyScape Corp., was launched in 2003 in Cambridge’s Kendall Square. It sought to commercialize supply-chain technology developed at MIT’s Auto-ID Labs through a team led by professor Sanjay Sarma.
That business was relaunched in 2009 with capital from the New York venture capital firm FirstMark Capital and folded into a new company, TraceLink. Last year, as governments stepped up efforts to stop counterfeiting, TraceLink raised $20 million from a new group including Volition Capital of Boston, Fidelity-owned F-Prime Capital Partners of Cambridge, and FirstMark.
The company now employs about 255 workers, more than 200 of them in an office park off Interstate 93. It has created a system that uses bar codes to serialize products and software to generate data — on the type of drug, where it was made, and shipment dates — that drug makers can share with partners and regulators.
Dahod estimates the emerging global market for drug-tracking systems eventually will top $2 billion, about half of it in the United States and Europe.
TraceLink won’t have the market to itself. Competitors include the German software giant SAP, along with more than a dozen smaller US and overseas companies, such as Axway Software SA of France, rfXcel Corp. of San Ramon, Calif., and Frequentz Inc., a Palo Alto, Calif., company that purchased a track-and-trace software business from IBM Corp.
Some of these players already sell similar software programs that track food products, consumer goods, or semiconductors.
Others are marketing “on premises” systems that biopharma customers and their vendors can install on in-house servers. TraceLink, by contrast, runs its Internet-based tracking system off servers operated by Amazon.com Inc.
“The market’s going to grow very fast,” said Michael Townsend, research manager for life sciences business systems strategies at IDC Health Insights in Framingham. “It’s probably going to triple in the next few years. The pharma companies and the distributors are actively working on this, spending money and buying software.”
The deadline for complying with the federal tracking requirement has created a window for TraceLink and its rivals to sell their systems and services to the hundreds of biopharma companies marketing FDA-approved drugs and the thousands of contract manufacturers hired to produce the drugs and distributors who ship them through the supply chain.
“The ultimate goal is to have complete visibility of every step, from manufacturer to patient,” Dahod said. “That will create better outcomes for everyone.”
If it succeeds, TraceLink, which has participated in pilot programs and helped develop the technical standards for the field, could become a market leader — and pave the way for an initial public offering of stock that would enable it to accelerate its growth.
Correction: An earlier version of this story included a caption that misspelled Shabbir Dahod’s name.