US pharma RFID market set for 60 per cent growth

The promise of genuine returns on investment, facilitated by plummeting hardware costs, will fuel a dramatic growth surge in the US market for radio frequency identification (RFID) technology in pharmaceutical manufacturing and distribution over the next five years, a new report predicts.

Kalorama Information is forecasting a compound annual growth rate of 59.6 per cent for the US market in 2007-2012, taking revenues up from $58m last year to $600m five years down the line.

Moreover, this is a "conservative" estimate, says Kalorama, which expects one quarter of the major pharmaceutical players in the US to implement large-scale RFID projects with the aim of cutting costs, improving inventory control, keeping tabs on clinical trials and managing the distribution of samples.

These bold projections ride somewhat in the face of creeping scepticism about the prospects for wholesale adoption of RFID solutions by the pharmaceutical industry.

Last year a survey of 143 life science industry leaders by Health Industry Insight found that fewer than one in five (16 per cent) pharmaceutical companies were evaluating the benefits of RFID technology, while 75 per cent of these evaluations were carried out on an annual budget of less than $50,000.

Even fewer companies (15 per cent of those polled) had actually adopted RFID, with 13 per cent doing so to a limited extent and only 3 per cent characterising their embrace of the technology as "widespread adoption".

Despite the enthusiastic endorsement of the US Food and Drug Administration (FDA) and the support of industry associations, concerns about issues such as security and privacy, orientation sensitivity, encode speeds, read rates and ranges, and the need for an actual FDA mandate have so far kept the RFID market for pharmaceuticals at a low simmer.

The Health Industry Insights report identified technology costs/return on investment (RoI) and reluctance to commit to infrastructure investment, aggravated by uncertainty about the relative virtues of high-frequency and ultra-high frequency RFID for item tagging, as the two biggest hurdles to technology adoption. But Kalorama Information believes a "huge drop" in hardware prices - specifically, by around 80 per cent since 2000 - has changed this equation.

Adoption of RFID "ensures a good return on investment for pharmaceutical manufacturers as well as distributors", the Kalorama report contends. Large manufacturers can save $17-55m and major distributors up to $10m per year by implementing the technology, it calculates.

This assumes tagging 50-100 per cent of items at an average cost of $65 per item. There is also an assumption that pharmaceutical manufacturers stand to reap the benefits of RFID in a wider range of business activities than distributors, such as clinical trials, sample distribution and inventory control. As much as 40 per cent of inventory can be managed more efficiently with RFID, Kalorama estimates.

Price deflation for RFID-related equipment over the last five years has reduced the initial investment needed to put a system in place, the report notes. And RFID manufacturers are developing equipment more suited to the pharmaceutical industry's needs.

In addition, the introduction of a universal tagging system through the standards-setting body EPCglobal "will further decrease prices and make the transition easier from old technologies to RFID", the report predicts.

The fall in RFID infrastructure costs (e.g., tags and readers) is expected to continue over the next few years. As Kalorama points out, the cost of RFID tags dropped from $1 per item in 2000 to around 15 cents last year, while the cost of readers went from $1,000 in 2004 down to about $200 in 2007.

In a broader context, accelerating demand for medicines as populations age sharpens the need to maintain product integrity and patient safety as well as streamlining pharmaceutical business structures, the report observes. "There are a number of solutions to help in this effort but radiofrequency identification is positioned to be a top solution in manufacturing and distribution, clinical trials and sample distribution," it comments.

According to the Kalorama Information report, the market for RFID applications in the US pharmaceutical industry was worth $35m in 2006, climbing 65.7 per cent to $58m in 2007.

This year revenues are expected to reach $102m (+75.9 per cent year on year), then $155m (+52.0 per cent) in 2009, $230m (+48.4 per cent) in 2010, $372m (+61.7 per cent) in 2011 and $600m (+61.3 per cent) in 2010.