Drug Channels delivers timely analysis and provocative opinions on pharmaceutical economics and the drug distribution system. It is written by Adam J. Fein, Ph.D., one of the country's foremost experts on pharmaceutical economics and channel strategy. Drug Channels reaches an engaged, loyal and growing audience of more than 18,000 subscribers. Learn more...

Wednesday, February 21, 2007

A Sad Tale

I receive a lot of emails as a result of my blog postings, but none that have been as painful to read as this one:

"Dr. Fein: As a college student without insurance benefits I decided to order a much-needed expensive prescription drug (Imitrex 50mg) from the internet. I thought I was ordering from a Canadian company but when the drug arrived, I saw it was shipped from India. I had cause to try it last week when I awoke to an excruciating migraine. Over several hours I took 3 tablets receiving no relief whatsoever. Is there someplace I can send these pills to for a scientific evaluation? I feel for certain I was taken for fraud and certainly will not risk taking any more of these for fear of what it actually in the tablet's chemical makeup. I would however like to report them if they are fraudulent. Do you have any suggestions? Thank you."

I advised him to:

1) Report the incident to the FDA at the following webpage:
http://www.fda.gov/oc/buyonline/buyonlineform.htm

2) Check if he qualifies for a patient assistance program:
http://www.pparx.org

A troubling cautionary tale...

Importation Illusions

Here's another reason to question the value of importation: it may not save any money! Pharmaceutical Manufacturing just published my op-ed outlining why manufacturers and consumers would bear most of the risks and costs of importation, but would get little of the supposed price savings.

Check it out here: Importation Illusions

(I realize that my article requires some understanding of drug distribution channels, so I'd welcome your ideas on how to get the message disseminated more broadly.)

The safety issue remains very significant. Yesterday's International Herald Tribune reports on an "epidemic of counterfeits" in Asia. (See A growing epidemic of fake medications in Asia.)

The scope and sophistication of the fakes is frightening. Here's the latest trend - fakes designed to act like (not just look like) real drugs. The latest fakes "contained drugs apparently chosen to fool patients into thinking the pills were working. Some had acetaminophen, which can temporarily lower malarial fevers but does not kill parasites. Some had chloroquine, an old and now nearly useless anti-malarial. One had a sulfa drug that in allergic people could cause a fatal rash. And some had a little real artemisinin — not enough to cure, but enough to produce a false positive on the common Fast Red dye test for the genuine article."

Apparently, counterfeiting is primarily an export business from China. Criminals and their families get sick, too. See my recent post Importing Chinese Counterfeits for more on the import risk for the US supply chain.

Now that the 2008 Presidential campaign has started (only 622 shopping days left until the election), I'll be very curious to see how the candidates address the realities of the House and Senate importation bills.

Sunday, February 18, 2007

Greece is the Word

In case you missed it, the FDA issued a press release last Friday with the following statement:

"The Food and Drug Administration (FDA) has become aware that a number of Americans who placed orders for specific drug products over the Internet (Ambien, Xanax, Lexapro, and Ativan), instead received a product that, according to preliminary analysis, contains haloperidol, a powerful anti-psychotic drug."

Whoops! Note that the packages were postmarked in Greece, which entered the EU in 1981 and is therefore considered a permitted country by both the House and Senate importation bills. As I suggested in Importing Chinese Counterfeits, it would be depressingly easy for counterfeit drugs to pass through Greece on their way to the US.

The PARADE article that I mentioned on Friday (Is Your Medicine Dangerous to Your Health?) was mostly a rehash of previous stories. I was disappointed that it perpetuated the "RFID as magic bullet" solution, although I doubt many of its loyal readers are commercial operations executives. The article also sidestepped the counterfeit risks posed by importation legislation, simply warning people not to buy prescriptions online. The reader comments are scary, especially from two patients who are wondering if they have fake pills.

On the other hand, PARADE did keep me In Step With® Christina Ricci, so the issue wasn't a total loss...

Friday, February 16, 2007

Read PARADE this Sunday

Keep an eye out for PARADE magazine in your Sunday newspaper (Feb 18). The cover story will be “Could Your Medicine Be Fake?”

Read their press release here: Are Counterfeit Drugs Finding Their Way to Your Home?

Shallow education or callow fear-mongering? I’m not sure yet.

This week’s PARADE will also cover “easy and elegant” Oscar party recipes. Don’t forget to email me with your favorite one!

Monday, February 12, 2007

AMPed down

Buried in the President’s FY2008 is a proposal to reduce the Federal Upper Limit for generic drugs from 250 percent of average manufacturers price (AMP) to 150 percent of AMP. (Fellow budget geeks can read it for themselves on page 159 of Major Savings and Reforms in the President's 2008 Budget.)

I’ve been pondering the impact of AMP on the supply chain for some time now. But to be honest, I missed this specific proposal in the budget. Keep in mind that the definition of AMP is not even finalized yet!

As I noted last week in Trouble Ahead for Independent Pharmacies, the Deficit Reduction Act will hammer independent pharmacies by lowering gross margins on generic prescriptions. But the 2008 budget proposal is not a surprise if you recall President Bush’s comment last year: “It’s not immoral to make sure that prescription drug pharmacists don’t overcharge the system.” Needless to say, that sentiment did not endear him to the pharmacy lobby.

I still predict that private payers will be migrating away from AWP to AMP-based pharmacy reimbursement, but I’m skeptical about other proposed metrics such as WAC. Take another look at my popular November post The Attack on Generic Profits in Drug Channels for strategic planning questions to help you figure out the pharmacy supply chain’s future market structure.

Since I don’t charge for this blog, I must also remind you that free advice costs nothing until you act on it. Caveat lector!

Friday, February 09, 2007

Importing Chinese Counterfeits

Today's Wall Street Journal has a fascinating peek into the world of counterfeit drugs in China. (See China Government Cited in China Probe.) The article states:

"For years, China's pharmacies and hospitals have been plagued by low-quality and fake medicines made by local drug companies. Just last fall, an antibiotic made by a pharmaceutical company in Anhui province sickened dozens of people across China and killed at least 10, according to China's state-run Xinhua news agency.

Blame often falls on small drug makers that the government says skirt laws to turn a profit. Now, the man who ran China's State Food and Drug Administration until he stepped down in 2005 is at the center of a widening corruption scandal. The State Council, the country's cabinet, alleges that Zheng Xiaoyu, the agency's former head, accepted bribes from drug companies and abused his power, according to Xinhua."

Scary stuff. It makes me appreciate the relatively secure drug supply chain that we enjoy in America. If you're like me, you'll also wonder why Congress wants to infect our system by creating new gateways for counterfeits with importation legislation.

I suppose we should all be grateful that Senator Dorgan's bill leaves China off the list of approved countries, right? His importation website mildly states: "The bill allows U.S.–licensed pharmacies and drug wholesalers to import FDA–approved medications from Canada, Europe, Australia, New Zealand, and Japan..."

But if you bother to read the actual text of the inaccurately named S.242 Pharmaceutical Market Access and Drug Safety Act of 2007, you'll discover that the list of permitted countries includes any "member country of the European Union."

I get really worried when I look at list of member states, especially those added in the EU's 2004 enlargement. So I'm left wondering: How hard would it be for a drug made in China to pass through Latvia or Slovenia on its way to the US? Let's face it -- probably not too hard at all.

Re-read my post from last November on a scheme that put fake drugs from India into the hands of US consumers. (Of Spammers and Senators). Then ask yourself: why are politicians endangering public health by opening up diversion channels for criminals?

Wednesday, February 07, 2007

Trouble Ahead for Independent Pharmacies

2007 will go down as a bad year for independent pharmacies -- and they know it. Check out Federal budget plan raising alarms in Drug Store News.

I continue to believe that the Deficit Reduction Act will hammer independent pharmacies by attacking generic profits. Adding insult to injury, Wal-Mart's $4 generic program will hurt supermarkets, independents, and other discounters more than major chains such as CVS or Walgreens. (See Generic Zocor Hits $5 per Month.)

But independents and chains will soon find their paths diverging, with important implications for wholesalers.

Swimming Upstream

The NCPA continues its fear mongering with a prediction (threat?) that "access to life-saving prescription medicines" is at stake. (See Wake Up, Washington.)

I hate to mention it, but there are half as many independent pharmacies today as there were 15 years ago. No crisis yet.

Unfortunately for NCPA and its members, they are waging war with the American shopper. Like it or not, US retailing continues to become more concentrated and increasingly dominated by chain stores, warehouse clubs, home centers, and big box superstores. Consumers are fueling this trend by consolidating their purchases and shopping at fewer, larger stores. Low prices and self-service ("How can you help you?") now dominate.

Check out the floral industry (appropriate since we're coming up on Valentine's Day). Florists now sell less than one-half of all flowers purchased in the United States because supermarkets have added a floral category and Internet florists have captured a small but growing portion of the market. (As it happens, I'll be discussing these trends in a keynote address at the Wholesale Florist & Florist Supplier Association annual convention.)

Fifteen years ago, few of us anticipated a world in which shoppers would learn about new music from our home computer, buy groceries at Wal-Mart, purchase milk and eggs at a pharmacy, bank at the supermarket, and get prescriptions through the mail.

What about Wholesalers?

Drug wholesalers face a shrinking number of potential retail pharmacy or supermarket customers even as the market grows. Drug wholesalers have beaten these odds by using their information systems, logistics, and geographic coverage to stay relevant to large retailers. The current drug pricing system also helps. (See my September 2005 white paper for an analysis that wholesalers would prefer that you did not read.)

Smaller retail customers rely on wholesalers for much more than a chain -- delivery, credit, generic sourcing. The threat of disintermediation is low and the profits are generally higher for the wholesaler.

As a result, drug wholesalers are trying to help small retailers compete against the retail giants with buying programs and retail services. Fred Gebhart at Drug Topics did a nice overview of pharmacy buying groups and franchises, including programs offered by the Big 3 wholesalers. (See Pharmacy franchises: Should you join one?.) His article gives a nice overview from the perspective of an independent pharmacist. BTW, McKesson's new model apparently now has more member pharmacies than Cardinal's Medicine Shoppe franchise. (See McKesson measures Rx for taking the top spot.)

For comparison, check out United Stationers, a well-run company outside pharma that helps independent office supply stores (yes, there are still a few thousand left) compete against Staples et al.

Owning the customer provides even more security, especially if you happen to be a large-cap company with loads of cash and nothing better to do with it than buy back stock and pay down debt. Hmmm...