Thursday, November 12, 2009

Gray Market: I'm Not Dead Yet

Secondary market appears to be alive and well. Whether or not patients remain alive and well is a whole different question.

Check out Profiteers peddling flu vaccine from newspapah-of-recahd The Cape Cod Times, which notes:
The seasonal flu vaccine is in short supply, but licensed pharmacists and medical professionals can purchase it on a so-called "gray market" — for as much as eight times the manufacturers' original price.
Unfortunately, the illegitimate secondary market will exist as long as there are willing buyers for products with questionable heritage.

History has shown us that wild west secondary trading markets create a wide open gateway for counterfeit drugs to enter the legitimate drug distribution system. Read Dangerous Doses: A True Story of Cops, Counterfeiters, and the Contamination of America's Drug Supply, an expose of drug diversion by essentially unregulated drug wholesalers in Florida. The book will show you why Florida passed a pedigree law.

Even Cardinal Health (NYSE:CAH) was forced to promise good ol’ Eliot Spitzer that the company would back away from secondary markets. See Cardinal's Sins.

Inventory Management Agreements (IMAs) and Fee-for-Service agreements dramatically reduced secondary market activity in the U.S. wholesale channel. This has limited product leakage into the grey market and closed a significant entry point for counterfeit drugs.

But we still need to be vigilant because even legitimate pharmacists will be tempted to purchase in the secondary market. A 2004 study found that two-thirds of hospital pharmacy directors use secondary wholesalers as a resource to obtain needed supplies during a product shortage. (Source) If there are willing sellers of dubious H1N1 vaccine, I’m sure there are buyers out there.

Pedigree is one possible solution, although we have no national standards as I point out in my 2008 op-ed Securing America’s Pharmaceutical Supply Chain. I haven’t written a lot about pedigree since the California law was pushed off to 2015, dashing the hopes of many tech companies. See CA E-Pedigree: Hasta La Vista, 2011 and Federal Pedigree Sand Trap for background on the general topic.

BTW, the CCT article references a lawsuit by RxUSA regarding pedigree. As reported in Pharmaceutical Commerce, RxUSA’s lawsuit against wholesaler and manufacturers was thrown out in late September. But as far as I know, the FDA is still enjoined from implementing the pedigree requirements of the 1987 (!) Prescription Drug Marketing Act as I discussed way back in No PDMA for You! in December 2006.

Bonus tip: In addition to potentially-counterfeit flu vaccine, you can also find some wicked good licka stohars down theyah on the Cape.

9 comments:

  1. It is unfortunate that this "Gray Market" label puts legitamete senconday wholesalers at such a disadvantage. Never mind that secondary wholesalers bear the burden of documenting every transaction via pedigrees and reissue one with every sale. States have different requirements but for tne most part a pedigree must demonstrate documentation all the way back to manufacturer. Every pharmaceutical purchased by secondaries must be verified and documented before it is sold. The shame in all of this is that the big three (Cardinal, McKesson and Amerisource) and their pets (Morris Dickson and HD Smith)have done all they can to push secondaries out of the market and have used supply chain integrity as an excuse. If that is not enough, when Florida passed their current pedigree law, it required ALL distributors to obtain pedigrees back to the manufacturer EXCEPT Cardinal, Amerisource, McKesson and HD Smith. How does that protect the supply chain??? In addition, the big three passed a memo to all secondary distributors that bought from them and notified them that they were closing their accounts. Amerisource was nice enough not close all accounts but it now required a $5,000.00 monthly free for them to supply a vendor with a pedigree from their end, extortion?? Nice!
    There will be unethical companies in every type of business and industry. If we generalize an entire industry because of a few rotten apples you putting at risk the livelyhood of many families. Please keep that in mind.

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  2. Just a guess, but I bet the person above is a secondary wholesaler. There are ethical secondaries alongside the ones buying and selling for huge markups. Pedigree is needed because a lot never ask where product comes from or won't say to "protect" their sources. Transparency hurts!

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  3. Excellent post Adam. More proof that legitimate companies are willing to buy from illegitmate sources is the fact that stolen insulin was apparently found at a supposedly reputable "medical center" in Houston earlier this year. Hopefully we haven't heard the last about that case. Full exposure of how that product found its way there would be very interesting.

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  4. It is irresponsible and reckless to impugn an entire industry based on a book of a few bad apples. The overwhelming majority of secondary wholesalers fulfill an absolutely vital niche to serve patients in markets that are difficult to accommodate.
    I am sure you are quite aware that many secondary distributors actually enjoy authorized distributor of record status – i.e. direct relationship with manufacturers. (Continued below)

    You may also be interested in knowing to whom this vital sector of the pharmaceutical industry sells its products:

    • The White House (When flu vaccine was unavailable)
    • DOD and VA hospitals
    • Major research and university hospitals
    • Large urban hospitals and small rural hospitals
    • Rural and inner city clinics
    • Large and small physician practices
    • Secondary distributors also provide life saving service for emergency patients (Anti-venoms, Rabies vaccine, critical surgery drugs, etc.)

    I am sure you must be aware that this industry, in a highly aggressive and organized manner, has been working with its larger distribution partners, to effect stringent new pedigree legislation. In fact, in developing draft legislation, the secondary industry has worked closely with its larger counterparts to ensure the passage of a federal bill.
    Further, the secondary industry lobbied aggressively to enact California’s pedigree legislation.
    Mr. Fein, have you ever toured or seen a secondary pharmaceutical distributor? Surely, you must have in order to determine the illegitimacy of this entire industry.
    Sadly, I fear you have not. If you had actually done legitimate research, you would realize that this industry is predominately made up of family-owned/hard- working small businesses.
    Mr. Fein, in the future, please take you time researching the subject before you indict an entire industry.

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  5. Wow, those secondary wholesalers sure are sensitive folks!

    Apparently no one noticed that I wrote "the illegitimate secondary market." Yes, Virginia, there is a valid multi-step secondary distribution channel. I understand that it has a valid place in the market.

    That said, legitimate secondary wholesalers must be willing to clearly and unequivocally demonstrate how they differ from the unsavory wholesalers that traffic in potentially counterfeit product. In other words, stop moaning about "extortion" and "burdens", OK?

    Sorry if I dented your self-esteem.

    Adam

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  6. Adam, I think you’re aware that the secondary industry has tirelessly worked to engage federal and state legislators and regulatory agencies to enact the most comprehensive and meaningful pedigree bill possible. The last thing any small distributor wants is to have an irresponsible player among our ranks. -- As a collection of small businesses we simply can not afford it.

    The secondary industry is more than happy to embrace the most stringent pedigree law (re: support of Buyer/Matteson legislation as well as California’s enacted law). In the past, it is acknowledged that certain criminals definitely did take advantage of lax state licensing laws as a means of developing illegitimate cover for their activities. These nefarious types have, by and large, been weeded out by increasing stringent state licensing requirement (which we support). On behalf of our industry, I for one am happy to pass pedigree. You should be aware that the passage of pedigree in this industry is religiously adhered to by our small businesses. We don’t tolerate rogue or irresponsible actors and seek to report them when they are identified.

    Again, it should be worth noting that the secondary industry has sought aggressively to police and improve itself. Opposition to federal pedigree overhaul does not lie with this sector. We recognize that electronic pedigree/serialization starting with the manufacturer and continuing with EVERY transaction is the surest way to secure the pharmaceutical supply chain. With this in mind, it begs the question; what interests/stakeholders sought to block pedigree reform in California and at the federal level? It should be noted that the entire distribution sector (Big 3, secondary, med/surg and veterinary) enthusiastically embraced both efforts.

    Our sensitivity stems from the perception you create that this industry is roughly 50/50 legitimate/illegitimate.

    In fairness, your post should go much further in distinguishing this industry’s vast majority of responsible businesses verses the very small minority of bad apples that have tainted us. Here’s an idea; perhaps a piece on the critical role this sector plays in the good work it accomplishes.

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  7. "perhaps a piece on the critical role this sector plays in the good work it accomplishes."

    Isn't that what all of the comments above suggest?

    And if there's a good story to tell, then by all means I encourage the secondary wholesalers to get some PR action going.

    “Some are born great, some achieve greatness, and some hire public relations officers.”

    Adam

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  8. So Adam...How much do you charge?

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  9. My PR advice above is gratis, just like the blog.

    Of course, sometimes free advice is worth what you pay for it.

    ;-)

    Adam

    ReplyDelete

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