In a particularly lyrical moment last May, I wrote: "To paraphrase Dennis Miller, importation has been declared dead more times than a narcoleptic Jason Voorhees. So expect to see this political crowd-pleaser resurrect itself in time to lurch around Washington during the '08 elections."
Sadly, my forecast came true on Saturday during the Republican debate in New Hampshire when Senator John McCain (R-AZ) spouted a load of nonsense about both drug pricing and importation. I have a lot of respect for the Senator, who is expected to do well in today's New Hampshire primary. But he was waaaaay off base on his knowledge of the pharma industry.
What Senator McCain Said
Senator McCain claimed that the attorney generals of South Carolina and Iowa have “sued the pharmaceutical companies because of overcharging of millions of dollars of Medicaid costs to their patients.” Sen. McCain then added:
“How could that happen? How could pharmaceutical companies be able to cover up the cost to the point where nobody knows? Why shouldn't we be able to reimport drugs from Canada? It's because of the power of the pharmaceutical companies. We should have pharmaceutical companies competing to take care of our Medicare and Medicaid patients.” (from the ABC News transcript)
Pandering to the Uninformed
The typical voter has no idea how much Senator McCain misrepresented the Medicaid lawsuits, which have nothing to do with any top secret cover ups.
In reality, the lawsuits are based on allegedly “excess” spreads between Average Wholesale Price (AWP) and a retail pharmacy’s acquisition price under Medicaid. The problems with AWP are well known and hardly count as a cover up in 2008. (I discuss the Iowa lawsuit in Judge Saris on Fictitious AWPs.)
I also didn’t hear the Senator demonizing the pharmacies that profit from AWP spreads. And as I recall, it was the retail pharmacists (not manufacturers) that successfully sued the government to prevent the publication of actual average price data.
Ignoring National Security
Senator McCain then proceeded to falsely link the AWP lawsuits to importation, although there is no connection and importation legislation won’t save money for consumers anyway.
I guess that I shouldn’t be surprised because Senator McCain has consistently made demonstrably false statements about importation. Consider this chestnut from last November:
"These are drugs being reimported. They go to Canada and then they can come back in. It's a strawman to say that a country like Canada could not be responsible for safe drugs to be brought into our country." (Source: McCain Calls for Drug Reimportation.)
The Senator has spoken eloquently about the foreign enemies of our country. So why does he believe in the fallacy of safe Canadian sourcing? He must know that diverters and criminals will quickly take advantage of a more porous supply chain.
Perhaps my standards are too high, but it certainly looks like straight talk has gone right out the window. On the bright side, the election will be over in only 301 more days!
Believe it or not, it’s time for my final post for 2007.
In the spirit of the season, I want to highlight the major themes of 2007 along with my good calls and near misses. I also want to give you some insights about the Drug Channels blog and its future.
There were 114 posts on Drug Channels in 2007, so this is a very long post. However, you will be rewarded with a hilarious video from now-bankrupt drug wholesaler FoxMeyer if you make it to the bottom.
Shining Light on Pharmacy Economics and the Pharmaceutical Supply Chain
My philosophy in writing this blog can be summed up with a quote from the late Senator Patrick Moniyhan: “Everyone is entitled to his own opinion, but not his own facts.” In my own way, I want to bring facts and balance to subjects that don't get sufficient or accurate coverage from traditional media outlets.
I was proud to break the story about CVS’ lawsuit with Prasco over generic pricing in CVS' Channel Power. Following coverage on Drug Channels, the story was picked up by Pharmalot, Drug Topics, The Pink Sheet, and a few Wall Street analysts. This was my big scoop of the year, even though information about the lawsuit was already in the public domain.
I also tried to write about channel management from the manufacturer’s perspective. We should never forget there would be no pharmacy or pharmaceutical supply chain without the innovative therapeutics developed by pharmaceutical manufacturers. For example, I followed Pfizer’s new UK distribution model throughout 2007. Pfizer beat back the legal challenges, but then faced an investigation by the Office of Fair Trading (OFT). I overestimated the likelihood of an unfavorable OFT report in Pfizer's UK Plan in Trouble, but hopefully redeemed myself by going Behind the Scenes of Pfizer UK and then explaining what the OFT’s toothless report could mean for the U.S. marketplace.
Average Manufacturer Price (not)
Average Manufacturer Price (AMP) was one of the most popular topics on Drug Channels. We will undoubtedly be hearing much more about AMP, despite the recent injunction covered in No AMP for You!
I also used Drug Channels to balance the doomsday visions put forth by certain pharmacy in Heretical Questions about the AMP War. Alas, this post did not win me friends at retail pharmacy trade associations, although the many comments from pharmacists indicate a grudging respect and even occasional agreement among actual pharmacists. The Illinois Pharmacist Association even conceded that Drug Channels is “thoughtful and in a lot of ways hard to argue with.”
I even managed to slip in some AMP humor in Death by AMP – an especially popular post in 2007!
The post-AWP Future
Anyone interested in the future of pharmacy reimbursement had plenty to read on Drug Channels this year.
I reviewed the Judge’s original ruling in the Average Wholesale Price (AWP) litigation last June in Comments on the AWP Decision and then followed it up by looking at the damages ruling and Judge Saris’ comments on fictitious AWPs. In my opinion, these decisions will effectively end the consideration of alternate "list price" pharmacy reimbursement models as replacements for current AWP minus models.
As I noted in ASP History Lessons, the introduction of Average Sales Price (ASP) reimbursement for Medicare Part B did not signal disaster for community oncologists or their patients. In fact, The ASP Future is Here because private health plans are already using Medicare’s ASP data for reimbursement, making me think that AMP (if ever published) will become the new pricing benchmark for retail scripts.
On January 1, 2008, CMS will pay for most Part B outpatient drugs at ASP+5%, which is a 1 percentage point drop from the current ASP+6%. It’s one more reason for pharmacies and providers to be anxious about the post-AWP future.
Counterfeiting and Security
Supply chain security was another hot topic at Drug Channels.
California’s looming 2009 e-pedigree deadline has manufacturers, wholesalers, and pharmacies scrambling to comply while also lobbying for a full or partial extension. In one particularly well-clicked post, I highlighted Virginia Herold’s trial balloon regarding a CA e-pedigree delay to 2011. Of course, she quickly backtracked from these comments, but I think a two-year delay or a phased implementation (per California Dreamin') is still very likely.
I generated some controversy by exploring the facts and myths behind much-hyped RFID solutions in RFID Un-Hype and More RFID Un-Hype. Check out the comments to those posts for some intriguing back-and-forth with DC readers.
I also attempted to present a unique supply chain spin on a few big media stories. PDUFA & Supply-Chain Security was one of very few resources to highlight the serialization requirements buried inside the Food and Drug Administration Amendments Act of 2007 (FDAAA). I even wrote about Presidential candidate John Edwards’ surprising embrace of track-and-trace technology in John Edwards and ... Pedigree?
Importation and Diversion
I am convinced that importation (a.k.a. legalized diversion) is risky due to my knowledge and experience about pharmacy supply methods. Unfortunately, mainstream media coverage does a poor job of connecting pharmacy and consumer behaviors to the patient safety dangers posed by importation. That’s why I explained the channel impacts behind importation and the fact that importation won’t really save much money.
My snarky posts about Senator Byron Dorgan – especially Consistent Inconsistency – generated fan mail from Washington, DC. (Sorry, only via private e-mail.)
Unfortunately, two of the three big drug wholesalers (AmerisourceBergen (ABC) and Cardinal Health (CAH)) faced DEA suspensions for supplying controlled substances to diverting pharmacies. Cardinal has now had suspensions at facilities in Washington, Florida, and New Jersey despite its December 2006 agreement to monitor pharmacies more carefully. I’m sure we’ll learn much more about this story in 2008.
And now a word from your host
I make Drug Channels freely available as part of my mission to educate, inform, and challenge people. I feel fortunate to have been similarly educated in many private emails and conversations that were sparked by the blog. So please keep emailing me with topics, questions, or news articles. I respond personally to all emails.
I am also gratified that readership of Drug Channels soared in 2007. Each week, there are a few thousand visitors on the site compared to only a few hundred in January. Drug Channels is frequently cited by many bloggers and reporters.
Your Reward: FoxMeyer Nostalgia
Congratulations for making it to the bottom of my 2007 review!
Enjoy this jaw dropping clip of a “motivational” meeting led by the senior executives from once-mighty FoxMeyer, which was acquired by McKesson through bankruptcy court proceedings in 1996. The hilarity starts at 1:23. Ah yes, the glory days when top execs would lip sync and dance on stage. I particularly enjoyed “Tim Beauchamp, Distribution Man” at 4:03, although he was a bit pitchy.
Hat tip to On Pharma. ------ I'll be back during the week of January 8. Until then, I wish you a healthly and happy new year!
The Sunday Times (London) has a fascinating peek behind the scenes of a Chinese drug counterfeiting operation. See Factory for Fake Prescription Drugs.
One of their reporters posed as a UK drug wholesaler (!), which was apparently a very convincing disguise. It's easy to locate a counterfeit supplier – just post an online ad. The initial order: 200,000 packs a month of three drugs (Plavix, Casodex, and Zyprexa).
Is this all true? Since the Times reporter is not law enforcement, the Chinese businessman denied making or selling any counterfeit drugs. Of course, he was forced to admit that he did happen have machines to make counterfeits. And the photo gallery for the story shows his factory making much more than the standard Poison Me Elmo dolls. Look carefully at the last few pictures.
The Times says: “One of the problems appears to be Britain’s reliance on drugs bought through parallel trade – the system in which drugs are bought and sold several times because prices vary between different European countries.”
I’m going to take a break from blogging until after Labor Day. In the meantime, here are a few stories that you may have missed this month. Don't worry -- I’ll be back in September!
1) Pharmacy fights back The Average Manufacturer Price (AMP) war has now moved to Congress, where multiple bills benefiting retail pharmacy have been introduced. Here are the major bills and their key provisions, which I’ll discuss further in upcoming posts:
BTW, you will not be surprised to find that emails from pharmacists about Heretical Questions about the AMP War have been generally negative. Oh well. I still maintain that an ounce of data is worth a pound of opinions.
2) Drug Imports: Coming Soon? In early August, I speculated that drug importation may be inevitable within the next few years. The lawyers over at Hyman, Phelps & McNamara provide a useful legal analysis of HR 3161, the Agriculture bill that included controversial drug importation language. Check out House Passes FDA Appropriations Bill With Drug Importation Provision, which concludes that “…the House and Senate are headed for a showdown over the issue as a part of FDA appropriations legislation.”
3) Cracking the Top 100 Drug Channels is now #69 on the Healthcare 100 list of top blogs on health and medicine. (There are actually 390 blogs on the list, so it's a good page to bookmark.) Thanks for helping to make Drug Channels such a success!
I also want to give a special shout-out to Al Godley of Edge Dynamics, who was named to the PharmaVOICE 100 list of industry influencers. Congratulations on this well-deserved recognition, Al!
4) Phun Phact about Philly Your friendly neighborhood pharmacy supply chain blogger is proud to live in the second "bloggiest" city in the US. Who knew?
Bloomberg has a great story today in which Johnson & Johnson talks publicly about how they disrupted a counterfeit diabetes test supplier. See China Counterfeit Diabetes Tests Tracked by J&J. Unfortunately, the story once again shows the dangerous connection between diversion and counterfeiting.
The article makes for a gripping read. Following customer complaints, detectives followed the bogus products to 700 pharmacies where the products were sold, then to eight U.S. wholesalers, and then to two importers, one in the U.S. and another in Canada.
Here’s the rub: the defendant wholesalers apparently believed the counterfeit strips were lower-priced gray market products diverted from normal distribution channels.
So, we (re)learn the lesson that diversion is the primary way for counterfeit products to enter legitimate channels. That’s why allowing importation will open up new gateways for counterfeits. I just wish that Senator’s Dorgan and Snowe would try to understand the dangers!
Unfortunately, there’s still a fatal flaw in J&J’s distribution channel. One LifeScan executive is quoted as saying: “We recommend customers obtain their diabetes testing supplies from reputable sources to reduce their risk of receiving counterfeit product in the future.”
Sounds sensible, but a “recommendation” is much too weak. Why doesn’t LifeScan require all pharmacy customers to purchase only from authorized distributors and then require authorized distributors to only buy directly from the manufacturer? That's the situation for prescription drugs, where Inventory Management Agreements (IMAs) and Fee-for-Service agreements have limited product leakage into the grey market and closed a significant entry point for counterfeiters.
And I pointed out yesterday, there is still no way for the ultimate consumer/patient of these diabetic tests to know whether their pharmacy or its wholesaler got the product from a legitimate source. Very few people are willing to discuss this truly scary part of product security.
P.S. Given the quality problems of Chinese goods, many people seem eager to throw out overseas sourcing for political reasons. Not me. I am simply arguing against diversion, not against Chinese sourcing. See The Risks of Chinese Sourcing on my Distribution Trends blog for more details.
These headlines are not really accurate. Nevertheless, drug importation fans continue to fight on, making me fear that this legislation is inevitable.
HR 3161, a massive agriculture bill, was passed on Friday by a vote of only 237-18. Math wizards will note that the total is far less than 435 district total because Republicans essentially boycotted the vote.
Here is the primary drug importation text buried inside the bill:
“SEC. 726. None of the funds appropriated or otherwise made available by this Act for the Food and Drug Administration may be used under section 801 of the Federal Food, Drug, and Cosmetic Act to prevent an individual not in the business of importing a prescription drug within the meaning of section 801(g) of such Act, wholesalers, or pharmacists from importing a prescription drug which complies with sections 501, 502, and 505.”
Obviously, this text is much less intrusive than the primary House importation bill (HR 380), the inaptly named Pharmaceutical Market Access and Drug Safety Act of 2007. H.R. 380, which now has 102 co-sponsors, includes detailed requirements about pedigree and track-and-trace systems. H.R. 380 and its Senate cousin S.242 impose many commercial restrictions on drug makers.
S.242 was undone by an amendment requiring the administration to certify the safety and effectiveness of imported drugs before they can be imported. In contrast, the House voted 283-146 to reject Rep. Jack Kingston's amendment to remove section 726 from the H.R. 3161 bill.
As Senator Vitter’s diversion obsession shows, the fans of importation draw inspiration from Spartan King Leonides: No retreat, no surrender. (Yes, I finally saw 300 this weekend.) So why do I still run into executives who claim not to be preparing for the eventual passage of an importation bill?
Importation from Canada is diversion, plain and simple. Drug diversion is the primary way that counterfeit drugs get into legitimate pharmacies. Thus, importation will open up new gateways for counterfeits, even though it won’t even save much money.
I hope that our pro-importation politicians are paying attention.
If young Al’s 100 mph Prius drag race isn’t scary enough, then read The Philadelphia Inquirer’sfascinating 8-part series about a father-son duo that imported bulk drugs from India and then fulfilled huge orders for online pharmacies. I summarized their scheme last November in Of Spammers and Senators, noting that we can never be sure where "Canadian" pharmacies are getting their supplies.
So I was especially disappointed to read that four people died after taking counterfeit Norvasc dispensed from a local Canadian pharmacy. According to the article cited above: “The pharmacist was acquitted this spring, though, after a judge concluded there was no evidence that he sold the drugs knowing they were counterfeit. The druggist said he had bought them from a traveling salesman.” Say what?!?
Do our politicians understand these risks? Doubtful, although at least Senator Dorgan can finally be true to himself when blocking Canadian imports now.
ADDENDUM (7/26/07)
Sigh. Another day, another batch of counterfeits discovered. Chinese police seized more than a tonne of fake drugs for impotence, bird flu and malaria, including at least 18,000 fake Viagra tablets, according to this Reuters story.
"On a 49-40 vote, the Senate required the administration to certify the safety and effectiveness of imported drugs before they can be imported, a requirement that officials have said they cannot meet."
Well done, Senator Cochran.
But it's not time to relax yet. To paraphrase Dennis Miller, importation has been declared dead more times than a narcoleptic Jason Voorhees. So expect to see this political crowd-pleaser resurrect itself in time to lurch around Washington during the '08 elections.
Oscar Wilde once said: “We are never more true to ourselves than when we are inconsistent.” By that rule, Senator Byron Dorgan (D-ND) is a man of rare self-awareness.
As you know, Senator Dorgan has been pushing open borders for prescription drugs. He successfully tacked his importation legislation onto the Senate’s drug safety bill last week. (See Importation Acceleration.)
So let’s play fill-in-the blanks. Here’s an actual quote from the Senator’s own May 3, 2007, press release regarding Country of Origin Labeling (COOL):
“Consumers have the right to know where their [product] is coming from, and to make their own decision - fully informed decisions - about whether they want to be [consuming products from country], under the current circumstances.”
Product (a) meat (b) drugs
Consuming products from country (a) putting beef from Canada on their table (b) swallowing drugs diverted from Bulgaria, which is #84 on the Corruption Perceptions Index
Alas, the correct answer is (a).
May I humbly suggest the following magnet for the Senator's fridge?
The dangers of importation are well known to anyone familiar with our convoluted system of drug distribution. Plus, importation won’t even save much money although it will add significant safety risks for patients. But the unfortunate political reality is that 80% of U.S. adults support importation along with all three Presidential candidates from the Senate (McCain, Clinton, and Obama).
I believe that importation legislation will also create a viable profit stream for wholesalers from parallel trade. These new profits will not be directly controlled by manufacturers, creating a new degree of independence from manufacturer-led fees/discounts for U.S. wholesalers - and potentially more channel conflict.
And if you read the fine print (I did!), the legislation contains significant pedigree and track-and-trace requirements. Hmm, I wonder what magic bullet technology Dorgan will consider?
More to come as the debate heats up next week...
P.S. Yep, that's me as a kid in the photo at the top of the post!
“Given the dangers that fake drugs pose, questions are being asked about why the problem wasn’t tackled earlier. ‘The drugs companies wanted the problem kept hidden so that it doesn’t affect their legitimate business’, alleges Dr Akunyili.”
Huh?? Don’t drug companies lose sales and brand reputation because of counterfeits?!?
Although the filmmakers apparently don’t want to be bothered with the facts, I must point out the following inconvenient truths:
The industry tells Congress about the dangers of counterfeits entering the legitimate supply chain due to illegal diversion. Senator Dorgan accuses the industry of simply trying to maintain pricing power and blithely disregards the FDA’s factual presentation about safety concerns. (See Import Battle Heats Up.)
The FDA tries to lift the stay on implementation of the pedigree requirements of the PDMA. Wholesalers operating in the secondary market, who I believe should reasonably expect a higher level of scrutiny, successfully get a court injunction to block the FDA. (See The Impact of the PDMA Injunction.)
Pfizer overhauls its UK distribution system following repeated incidents of counterfeit drugs. The company is promptly sued by wholesalers and subject to an investigation by UK’s Office of Fair Trading. (See Pfizer wins again.)
PhRMA operates BuySafeDrugs.info to educate consumers about the dangers of counterfeit drugs. PhRMA is also a North American partner in Safemedicines.org. No cover-up here.
The introduction of Inventory Management Agreements (IMAs) and Fee-for-Service agreements now limit product leakage into the grey market, closing a significant entry point for counterfeiters. Drug makers literally pay for greater product security by purchasing data from wholesalers to monitor orders, inventories, and product movement in real-time. Yet the critics can’t bring themselves to give credit for the industry’s progress with supply chain security.
I could go on, but you get the idea.
Drug makers are damned if they do, damned if they don’t.
A court injunction against an online Canadian drug seller highlights a fundamental problem with importation – and also lets me give you a peek into the interconnected world of pharma industry blogs.
I picked up the story from Ed Silverman’s Pharmalot blog post. Ed apparently has a T-1 connection plugged into his arm because he published an amazing 33 posts yesterday, putting guys like me to shame. (Ed provides a real service to the industry by posting real news throughout the day, every day.)
The mystery blogger at Pharm-Aid picked up my comment in New Jersey Vetoes Drug Importer. (BTW, I like many posts on Pharma-Aid but do not provide a link on my Industry Blogs list because the blogger remains anonymous.) Mr. Mystery pointed to a post by John Mack on Pharma Marketing Blog in which John contends that the risk of counterfeits via importation is nothing more than a “negative scare tactic.”
My point, and I do have one…
The problem with importation is not that all drugs from Canada are counterfeit. Instead, the problem is that importation is diversion – selling products intended for one market into another market. In the case of importation, diversion is an opportunity to arbitrage price differences between products sold at different prices in different countries.
Unfortunately, while diverted or resold products are not necessarily counterfeits, all counterfeits enter via diversion in the secondary market. Let me be clear: Drug diversion is the entry point for every case investigated by the FDA involving counterfeit drugs going into legitimate pharmacies. Even Tony Soprano has finally figured out that diversion of adulterated drugs could be a sweet deal. (Thanks again, Ed!)
This brings me back to Medications4less. I wrote about the risks of internet pharmacies in February after getting a troubling email from a college student. (See A Sad Tale.)
Unfortunately, the proposed importation bill (S.242) before the U.S. Senate would enable copycat websites by legalizing diversion from countries with very low scores on the Corruption Perceptions Index. You heard me right – S.242 will make importation legal from Bulgaria (#57) and Romania (#84)! (See my recent posts for some real-world examples of the dangers: Importation Illusions; Greece is the Word; Importing Chinese Counterfeits .)
Bottom line: (a) Don't buy Fosamax from Tony Soprano, and (b) Read pharma blogs.
Yesterday, the UK’s Office of Fair Trading (OFT) announced its intention to study the pharmaceutical wholesaling market in light of Pfizer’s new distribution arrangement with Alliance Unichem. (See OFT's statement on Distribution of medicines in the UK.)
However, you probably don't realize that a similar arrangement in the U.S. between a manufacturer and a wholesaler would probably be illegal if the proposed importation bill (S.242) before the U.S. Senate becomes law. Trade relations and commercial relations executives should pay attention because importation legislation explicitly limits the way a manufacturer can structure its U.S. distribution agreements. (CYA Notice: I'm not a lawyer. Read the disclaimer at the bottom of this page!)
I have been following international drug channels for some time, most recently in A New Era for Distribution. OFT's statement explaining the rationale behind the study states:
“The pharmaceutical wholesaling sector is undergoing significant change, the competition implications of which are unclear. As of 5 March 2007 Unichem Limited has become the sole logistics service provider to Pfizer Limited. This represents a fundamental change to the workings of this sector and has prompted widespread concern among pharmacists, dispensing doctors and competing wholesalers. Other pharmaceutical manufacturers are also considering similar changes to their distribution arrangements.”
In my opinion, Pfizer has at least two legitimate objectives for their deal with Unichem:
Lower the risk of counterfeit products entering the supply chain
Recapture lost revenue from parallel importing
Given these reasons, I believe that the proposed importation legislation would make it illegal for Pfizer to set up a sole logistics provider relationship in the U.S.
In particular, the actions listed as “Unfair and Discriminatory Acts and Practices” in S.242 are clearly modeled upon manufacturers' strategies for managing parallel trade in the EU. (See the section beginning on line 13 of page 74 of S.242 Pharmaceutical Market Access and Drug Safety Act of 2007.) IOW, manufacturers will also have little choice about whether to do business with known US importers or non-US exporters.
Keep in mind that the importation bill is co-sponsored by all three Presidential candidates from the Senate – McCain, Clinton, and Obama. Iraq and the Medicare “direct negotiations” movement will keep the Senate busy this term, but look for action on importation in late 2007 and 2008.
Importation opens our borders to drugs from anywhere in the world and there is no plausible way of limiting importation to Canada or Western Europe;
Safety testing, inspections, chain of custody requirements and other attempts to “guarantee” safety provide no assurances that imported drugs will be safe;
Projections of potential cost-savings from importation are very small and the largest beneficiaries are arbitrageurs;
Importation is not free trade, it is price controls which lead to delays and denials in patients’ access to medicines; and
There are better, safer alternatives for patients to access needed medicines, including the Partnership for Prescription Assistance (PPA) and Medicare Part D for seniors and the disabled.
Astute readers of my blog will realize that I concur with all of these key points. His testimony is worth reading, especially because the footnotes cite most of the legitimate research on the subject. (Yes, distribution geeks like me always read footnotes!)
"I think we need to introduce a little price competition into the marketplace," said Dorgan. "There is no reason American consumers ought to be paying the highest prices in the world for prescription medicines."
Now, see if you can fill-in the blanks behind Senator Dorgan's comments in his Feb. 21 press release, just a scant 2 weeks ago:
“Recent reports show that Canadian [products] are crossing the border without required health certificates and identification,” said Dorgan. “[Federal agency ending in DA] does not need to be expanding importation of Canadian [product], when it can’t even enforce the current regulations.”
The correct answers: [products] = cattle; beef [Federal agency ending in DA] = USDA
Will generics be the next battleground between branded drug makers and their wholesalers?
Pay attention to Pfizer’s latest victory against generic Lipitor in Denmark. Here’s the summary:
“Pfizer Inc., the world's largest drugmaker, said Friday a court in Denmark blocked the sale of a generic version of the company's best-selling drug, the cholesterol-reducer Lipitor. The company said the Bailiff's Court in Copenhagen issued a preliminary injunction against the country's largest drug wholesaler Nomeco AS, preventing it from selling a generic version of Lipitor made by Indian drugmaker Ranbaxy Laboratories Ltd.” (Full story: Pfizer gets court injunction against generic Lipitor wholesaler in Denmark)
Note that Pfizer’s victory is against Nomeco (the wholesaler), not Ranbaxy (the manufacturer).
Will this type of conflict spill over to the U.S.? Consider the following three points:
The U.S. is moving toward reimportation legislation. There are bills before both the House and Senate. In Europe, wholesalers are big winners from importation because they absorb most of the price differences between countries. (See Importation Illusions.)Thus, importation legislation could be very good for the big wholesalers (AmerisourceBergen (NYSE:ABC), Cardinal Health (NYSE:CAH), and McKesson(NYSW:MCK)) as they would have the opportunity to become a legitimate conduit for imported products.
Wholesalers generate more profits from generics than branded drugs. Generic drugs now subsidize the distribution of much more expensive branded pharmaceuticals. (First noted back in May Will unbundling crush pharmacy profits?)
Intellectual property protection for pharmaceutical companies is under attack around the world. Keep an eye on a crucial case in India in which Novartis is defending its Gleevec patent. If they lose, then the world will have a new source of generics long before most U.S. patents expire. (See Novartis files suit against India ruling on drug patents.) The New England Journal of Medicine just published an article that argues in favor of India’s attempt to seize the patent. (See Taking TRIPS to India.)
Taken together, these three points suggest the potential for friction in manufacturer-wholesaler relationships due to the potent interaction of generics and importation legislation. I'll be curious to see if any manufacturers address this issue in the next round of wholesaler agreements.
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.
(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.
"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.
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..."
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?
All three big wholesalers -- AmerisourceBergen Corp (NYSE:ABC), Cardinal Health Inc (NYSE:CAH), and McKesson Corp (NYSE:MCK) -- posted strong results this week. But as Heather Won Tesorio points out in today’s Wall Street Journal: “All of the so-called ‘Big Three’ are reassessing their businesses and making efforts to return to their roots” in drug distribution. (See Cardinal, Refocusing on Core, Sells a Unit.)
There are very few wholesalers left to acquire in the U.S. So how could wholesalers grow their distribution businesses faster than market growth?
Here are three possible strategies that I am tracking, in order of riskiness:
1. Vertical integration -- Vertical integration would allow growth within drug distribution by giving wholesalers more control over their customer’s sourcing decision. This is already happening with the integration of oncology care and specialty products distribution. (See The 3PL vs. Wholesale battle heats up.) As I noted a few weeks ago, I also would not be surprised to see a Big 3 drug wholesaler acquire or merge with an acute care GPO. (See 2007 Trends: Integration (1 of 4).
2. Europe -- In my very first blog post last May, I speculated about a merger between a US and a European drug wholesaler. (See US wholesalers look to Europe.) You probably don’t recall the post because I only had about 3 readers back then. It's still a possibility, especially if the importation bill moves ahead.
3. China -- The Chinese government has been talking about consolidation for a few years now. This article caught my eye yesterday: China's wholesale drug channels to experience major changes. Foreign companies are already making inroads there. Interpharma, part of European company Zuellig Pharma, is the largest foreign company in the Chinese market right now. Beijing Med-Pharm is a US-based company that has been acquiring Chinese distributors. Is there a place for a U.S. wholesaler in China? Perhaps, although one Asian executive told me that the regulatory/political environment and business ethics in other parts of the world would be a big hurdle for the Big 3.
None of these strategies will be easy to execute, but all three reflect logical next steps for the drug wholesaling industry.
In a particularly lyrical moment last May, I wrote: "To paraphrase Dennis Miller, importation has been declared dead more times than a narcoleptic Jason Voorhees. So expect to see this political crowd-pleaser resurrect itself in time to lurch around Washington during the '08 elections."
