IBM Tuesday unveiled a software package that helps pharmaceutical makers and wholesalers use radio frequency identification to track drugs from manufacturer to pharmacist and prevent counterfeit drugs from entering supply chains.

The "RFID system for pharmaceutical track and trace" is also expected to help manufacturers and wholesalers cut distribution costs, IBM says, by reducing inventory expenses, easing product recalls, and enabling faster response to customer demand.

The system uses IBM's WebSphere RFID Premises Server for a platform. The idea is to collect and manage data from RFID readers and then apply business logic to the information, such as identifying drug shipments that have been recalled. Businesses can also build their own applications on top of the system, which also includes a data repository and other tools for communicating with HF and UHF RFID readers.

It's estimated that between $30 billion and $40 billion in counterfeit drugs are sold every year--a figure that's expected to nearly double to $75 billion by 2010, according to the Center for Medicines in the Public Interest. That poses a major health risk to consumers if they unwittingly buy fake medicines that may not work or cause fatalities. Then there are billions of dollars in lost revenue for drug makers.

The situation is spurring legislation at the state and national level requiring that drug makers and distributors take steps to ensure the pedigree of drug shipments.

"With legislation well underway, we see many major pharmaceutical companies investigating this," says Forrester Research analyst Ellen Daley in an E-mail. While she says the individual components of the IBM system aren't ground breaking, she says the "end-to-end solution" provides benefit because of its "breadth and depth" and related services.

IBM developed the track and trace system using experience it gained through working with Cardinal Health, a drug wholesaler, and an unnamed pharmaceutical maker. The system is available now and will be sold through IBM Global Business Services and systems integrators, says Paul Chang, IBM RFID/Pharma executive.