Santa's Supply Chain

This is my final post of 2006. I'm grateful for the positive response to my blog and very much appreciate the many positive emails and comments that I have received since launching 6 months ago.

Let's wrap-up the year with some homegrown Drug Channels supply chain humor, straight from the pages of The Wall Street Jovial:

Santa's Supply Chain Keeps Pace, Despite Changes

I will be back with my outlook for 2007 on January 2. Until then, have a great holiday!

Adam

Catching up on AMP and PDMA

Here are a few noteworthy news items on AMP and PDMA that I want to recommend:

1. Roundtable: Deficit Reduction Act (Pharmaceutical Executive, Nov. 2006)

I believe that 2007 could go down as the year of Average Manufacturer Price (AMP). I still believe that AMP will ultimately have a much bigger impact than many people expect. (See my June post McClellan and the magic AMP for background.) This roundtable article has some good insights about:

• The class of trade issue
• The use of AMP for rebates vs. reimbursement
• Implications of a public release

I recently heard that CMS will be issuing guidance on AMP very soon. Keep an eye on this apparently obscure issue because it will change life for PBMs, wholesalers, retailers, and insurers.

2. Injunction May Slow Momentum for RFID E-Pedigrees (RFID Update, Dec. 12 2006)

Check out this interesting article on PDMA that quotes Jayne Juvan, my favorite (and the only?) healthcare law blogger, as saying: "Ultimately, the courts tend to favor the government in cases such as this that allege Equal Protection Clause and Due Process Clause violations when the rational basis test applies." She's referring to the RxUSA et al case against the FDA.

The article also calls Drug Channels a "pharmaceutical law blog," which almost offends me. Maybe I should sue?

Thank You for Buying Counterfeits

Can’t get enough PDMA news?

Well, head over to Jayne Juvan’s surprisingly readable legal analysis of the recent injunction entitled RX USA Wholesale v. Department of Health & Human Services: A Legal Perspective. Jayne is a fan of yours truly, so allow me to return the compliment and suggest you read her thought-provoking perspective. She concludes: "Despite this victory, the Plaintiffs in this case have a long way to go, as the litigation only began a few months ago and this is only one hurdle among many that the Plaintiffs must overcome."

I was immediately reminded of a scene from the very funny movie Thank You for Smoking in which the main character (a Washington lobbyist) is asked by his son: "Dad, why is American government the best government?" Without looking up, Dad the lobbyist quickly replies:"Because of our endless appeals system." (This is a great DVD and an even funnier book, so make haste and pick it up today.)

More prosaically, I believe that the very concept of “pedigree” may need to be reconsidered. Counterfeits enter via diversion in the secondary market. But counterfeit sellers require counterfeit buyers, a problem that is not directly solved by pedigree requirements of the PDMA.

In Our Demand Side Counterfeit Drug Problem, I describe three rules that must be followed for pedigree to make the supply chain safer:

1. Pharmacy buyers must demand pedigree documents (electronic or paper) from wholesalers and be able to validate the authenticity of these documents.
2. Pharmacy buyers must only purchase from wholesale distributors in the “Normal Distribution Channel” or wholesale distributors that are willing and able to supply pedigree.
3. Consumers must (a) refuse to do business with any pharmacy that does not adhere to the preceding two rules, and (b) be able to validate a pharmacy’s compliance with these rules.

Rules 1 and 2 are on hold, at least outside Florida. Unfortunately, consumers and their political representative seem intent on ignoring rule 3. (See Of Spammers and Senators.)

In response, the National Association of Boards of Pharmacy launched a new website in November called http://www.dangerouspill.com/, complete with self-congratulatory press release. Like its PhRMA-sponsored counterpart http://www.buysafedrugs.info/, the NABP site aims to educate consumers about the dangers of buying counterfeits.

Business Week also jumped on the bandwagon this week with Bitter Pills, an article outlining the dangers of ordering drugs from “shady online marketers.” (Good tip!) Business Week helpfully portrays the sordid world of online pill sales as a cartoon, although I don't think my kids will be seeing that cartoon on Nickelodean following The Fairly Oddparents!

These worthy efforts aim at consumers. But I must note that the NABP and PhRMA sites sidestep the culpability or responsibility for pharmacy buyers to follow safe sourcing practices. Yes, I know that the NABP Model Rules outline various “Criminal Acts” associated with knowingly handling counterfeit drugs. Even legitimate pharmacists sometimes purchase in the secondary market. For example, 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: A research article published in the American Journal of Health-System Pharmacists.)

The industry sites do not help consumers identify legitimate pharmacies nor do they provide a way to validate that a pharmacy is behaving ethically in its sourcing practices. “End-to-end” visibility is a long way off, so we in the industry must confront the pharmacy buyer problem sooner or later, regardless of the endless appeals that are likely to dog the FDA's attempts to implement the PDMA.

The Impact of the PDMA Injunction

What will the injunction against the Prescription Drug Marketing Act (PDMA) mean in the pharmaceutical industry? (For background, see No PDMA for you! and It's Official: PDMA is Back On Hold.)

The FDA has not updated their PDMA resources page as of this morning, so it’s unclear what their formal strategy will be. Since I’m not qualified to opine on the FDA’s legal options, I’ll focus on a few business implications for manufacturers and wholesalers.

Manufacturers
This injunction should serve as a channel strategy wake-up call to manufacturers. In my opinion, senior executives in commercial operations at pharmaceutical companies should push their trade relations teams to develop formal channel management strategies. Frankly, the PDMA’s conception of “authorized distributor of record” is somewhat simplistic relative to channel management practices in other industries. (More on this topic below.)

I also want to reinforce my belief that manufacturers should invest more resources into gaining visibility into the movement of their product from factory to patient. Despite the RFID hype, the U.S. is still many years from a functional track-and-trace infrastructure, which was defined by Dr. von Eschenbach as “from the assembly line to the dispenser” at the NACDS/HDMA RFID conference. (See The FDA on PDMA.)

The Secondary Market
Let’s not delude ourselves –secondary markets will always exist when there are opportunities to arbitrage price differences between identical products being sold at different prices in different markets. In Europe, this arbitrage occurs as products are diverted across national borders and is called parallel trade. (See London Calling: Fake Drugs Get Real.) In the U.S., arbitrage also occurs as products are diverted between different classes of trade. Check out this graphical depiction of gateways into the U.S. supply chain.

While diverted or resold products are not necessarily counterfeits, all counterfeits enter via diversion in the secondary market. As the Chairman of the Subcommittee on Criminal Justice, Drug Policy and Human Resources noted in November 2005: “The FDA confirmed with Subcommittee staff that drug diversion was the entry point for every case investigated by that agency involving counterfeit drugs going into legitimate pharmacies.” Thus, any wholesaler operating in the secondary market should reasonably expect a higher level of scrutiny over their activities.

Secondary wholesalers
I am impressed by this legal victory, especially given my earlier skepticism. However, secondary wholesalers should recognize that manufacturers in many industries can and do legitimately limit the number of intermediaries that are authorized to sell its products. For example, Apple only allows iPods to be sold through authorized resellers.

The degree of distribution selectivity is a strategic channel design issue for a manufacturer, ranging from a single distributor (exclusivity) to an unrestricted number of distributors within a given market (intensive distribution). There is a large body of academic research on distribution channel selectivity in economics, law, and marketing supporting these channel strategies. Fans of academic jargon may enjoy reading an academic research paper on the topic that I published almost 10 years ago (available here), although the data did not include the pharmaceutical industry.

Given my comments about diversion above, secondary wholesalers must be willing to provide complete transparency to manufacturers about their business practices and product sources. Legitimate secondary wholesalers must be willing to clearly and unequivocally demonstrate how they differ from the unsavory wholesalers that traffic in potentially counterfeit product.

Big 3 Wholesalers
I believe that 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.

In addition, wholesalers such as AmerisourceBergen Corp (ABC) and Cardinal Health Inc (CAH) publicly renounced secondary market sourcing, the HDMA tightened its membership requirements, and major pharmacy chains such as CVS committed to secure sourcing. My conversations with executives at the big 3 wholesalers – McKesson Corp (MCK), Cardinal Health, and AmerisourceBergen – have convinced me that these companies are genuinely committed to a secure supply chain.

Two more things

• Before we let the rhetoric about “extinction of small distributors” get out of hand, I must ask: How come we have not heard about secondary wholesalers going out of business in Florida after the July 1 implementation of state-level pedigree? Just wondering…
• I must be touching a nerve on this topic because a few individuals prefer to insult me via private emails. One of these fellows (“D.K.”) is too cowardly to disclose his affiliation in this matter. I have posted my opinions for all to see. Perhaps he will open himself up to the same scrutiny by posting a (non-anonymous) comment on this blog.

It's Official: PDMA is Back On Hold

The pedigree requirements of the Prescription Drug Marketing Act (PDMA) are back on hold. This is a big loss for the FDA and a big win for secondary wholesalers, especially RxUSA. I'll post tomorrow on possible implications for the pharmaceutical supply chain in 2007.

See my post from last Friday -- No PDMA for You! -- for background. Then read Federal Injunction Will Delay Part of Drug-Tracking Law in today's Wall Street Journal, which states:

"In a surprising decision that strikes a blow against Food and Drug Administration efforts to curb counterfeit drugs, a federal judge granted an injunction that delays part of a long-stalled drug law that was to have taken effect Friday of last week.

Yesterday, U.S. District Court Judge Joanna Seybert of the Eastern District of New York sided with a group of drug wholesalers who argued that the law is in breach of equal protection and due process because it requires certain recordkeeping of some wholesalers but not others, according to lawyers for both sides of the case."

BTW, Heather Won Tesoriero of the WSJ and I appear to be the only people writing about this topic. Although that's surprising given the hype leading up to Dec. 1, I think of it as just one more good reason to tell your friends in the industry to read this blog. 'nuff said.

Sloppy reporting about Wal-Mart

Last Thursday's New York Times included some very sloppy reporting about Wal Mart Stores Inc (WMT). See Side Effects at the Pharmacy. (The story was widely syndicated, so here's an alternate link: Side Effects at the Pharmacy.)

The article questions the profitability of Wal-Mart’s program by incorrectly interpreting prescription data and then quoting a “consultant” with an undisclosed bias against Wal-Mart. This type of shoddy reporting only further confuses the debate about health care spending.

Since the New York Times’ editors read this blog, allow me to clear the air a bit by answering four questions:

1. How busy is an average Wal-Mart pharmacy? (A: A lot less than an average Walgreens)
2. How many more prescriptions did the $4 generic program generate? (A: About 16% more)
3. Did Wal-Mart have $31.5 million in extra dispensing costs? (A: Nope.)
4. Why was the Times so unbalanced? (A: Piling on?)

Q1: How busy is an average Wal-Mart pharmacy?

As a baseline, let’s estimate the typical volume at a Wal-Mart pharmacy in 2005.

• According to Drug Store News, Wal-Mart’s 2005 Rx sales were $11.036 billion.
• The average price per script in the mass merchant pharmacies was $62, implying that Wal-Mart dispensed 178 million prescriptions in 2005.
• Wal-Mart had 3,289 stores with pharmacies (per DSN).

After a little math, I estimate that the average Wal-Mart store dispensed 148 prescriptions per day in 2005 (assuming 365 selling days per year). For comparison, the same calculation for Walgreens yields an estimate of 270 prescriptions per pharmacy per day in 2005.

Q2: How many more prescriptions did the $4 generic program generate?

According to Wal-Mart’s Nov. 16 press release: “To date, as new states have been added to the program, 2.1 million more new prescriptions have been filled in those states as compared to the same time periods last year.”

• As of November 15, the generics program was available in 2,507 Wal-Mart stores.
• Stores were added on four different days (9/21; 10/6; 10/19; and 10/26). A calendar and some math shows that Wal-Mart had almost 65,000 total available selling days for the $4 generics program in these stores.
• Wal-Mart’s claim of “2.1 million more new prescriptions” translates into almost 15,000 new prescriptions per available selling day, or 32 new prescriptions per store per available selling day.

In other words, the average Wal-Mart pharmacy’s daily volume has increased by 22% (32/148) from September 21 to November 15.

However, IMS data indicates that total prescription growth was 6% from mid-September to mid-November 2006 versus the same period last year.

Therefore, it appears that Wal-Mart’s $4 generic program has added about 16% in real incremental prescription volume to the typical Wal-Mart pharmacy.

Q3: Did Did Wal-Mart have $31.5 million in extra dispensing costs?

The New York Times pooh-poohs the program, noting “…Wal-Mart might be able to declare the overall program profitable only by spreading the costs well beyond its pharmacy ledger.” The reporter then quotes “a pharmacy consultant in Stoughton, Wis.” named Ed Heckman: “But other costs, including store overhead and pharmacists’ paychecks, can add as much as $15 to the cost of dispensing a prescription, Mr. Heckman said. ”

Let’s see…2.1 million prescriptions @ $15 equals …$31.5 million!! So the program must be a boon for all of those pharmacists who are working extra hours, right?

Wrong. Total volume at a Wal-Mart pharmacy has gone up by about 32 new prescriptions per day – about 2 per hour given typical store hours. Marginal (incremental) overhead costs are probably $0.00 for an average Wal-Mart pharmacy. Following Mr. Heckman’s quote, the reporter notes that “selling drugs at $4 might be well below cost for many pharmacies.” Perhaps, but probably not for Wal-Mart.

Q4: Why was the Times so unbalanced?

I’m afraid I can’t really answer this question. Perhaps they are piling on after the post-election bashing given by Senator Barack Obama and former Senator John Edwards?

Nevertheless, I feel compelled to note that the New York Times failed to disclose a major conflict behind the quote above about costs. Mr. Heckman is not just a “pharmacy consultant,” but also President of PAAS National, a company that is "supported and endorsed by the NCPA” (the National Community Pharmacists Association). According to its website, PAAS also operates the Community Pharmacy Contract Clearinghouse for NCPA.

I note this lack of disclosure because NCPA has been a very outspoken critic of Wal-Mart. Check out the rather unambiguous titles of NCPA’s press releases "analyzing" Wal-Mart's $4 program:

• Wal-Mart Generics Program: Less Than Meets The Eye (11/21/06)
• Wal-Mart PR Stunt Goes Nationwide (10/19/06)
• Wal-Mart Pulls Another Fast One (10/5/06)
• Wal-Mart Offers Up Classic Bait-and-Switch (9/28/06)

Hmmm, wonder what NCPA really thinks?

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Anyway, this point of this post is simply to highlight that sometimes what passes for analysis in the mainstream media is really just opinion. Or as U.S. Senator Daniel Patrick Moynihan famously quipped: "Everyone is entitled to his own opinion, but not his own facts."

No PDMA for you!

Looks like the PDMA will not be going into effect after all.

I've been skeptical about the injunction filed by a group of secondary wholesalers to stop implementation of the pedigree requirements of the PDMA on Dec. 1. (See The FDA on PDMA and Channel Conflict as Pedigree Looms.)

But on Thursday, Magistrate Judge Kathleen Tomlinson recommended that a preliminary injunction against the Department of Health and Human Services and the FDA be granted. See the Wall Street Journal story Judge Rules on Long-Delayed Drug Law. (Fans of legal reasoning will surely enjoy the full injunction report and recommendation.)

Of Spammers and Senators

Have you ever wondered where spammers get their counterfeit Viagra? Or why U.S. Senators don’t care?

If so, then you should check out The Philadelphia Inquirer’s fascinating 8-part series about a father-son duo that imported bulk drugs from India and then fulfilled orders for online pharmacies. Check it out here: http://go.philly.com/drugnet

Here’s how it worked:

1. To avoid U.S. Customs, which targets small pill packages from overseas Web sites, Dr. Brij Bansal in India and his son, Akhil Bansal in Philadelphia, shipped millions of pills in bulk from Delhi to their Queens, N.Y., distribution center.
2. American consumers, responding to spam or using Google to search for drugs, placed a credit-card order with a Web site. The Web site charged the consumer's credit card, then forwarded the order to the Bansals’ operations in Agra, India, and Queens.
3. Immigrants at the Queens depot fulfilled the order, stuffing pills inside envelopes for UPS pickup. Within a day or two, UPS delivered the pills to the consumer's doorstep. Every few weeks, the Web-site operators wired payment to one of Akhil Bansal's bank accounts.

Strangely, the series has been virtually silent about whether the products were genuine, perhaps because the grand jury indictment focuses on the importation and distribution of controlled substances. (Perhaps the DEA could not indict if the Bansals were distributing fakes?) There is no evidence that the drugs were legitimate or had any active ingredients, making me question whether the Colorado woman found dead in her car (in Chapter 2 of the Philly Inky's series) had overdosed on blood-pressure medicine or just taken a dangerous counterfeit.

Nevertheless, I’d be willing to wager that manufacturing conditions at Dr. Bansal’s Indian operation did not quite meet FDA GMP standards. No mention of distribution best practices in the Queens warehouse, either.

The Return of Cosmic Irony

And in a strange bit of cosmic irony, the Associated Press put a prescription drug reimportation story on the wires Thursday. See New push to allow imported drugs expected in Congress.

Unfortunately, Senators Vitter and Nelson remain blissfully ignorant about the dangers posed by allowing consumers to source products outside of legitimate domestic channels. Some questions for them:

• Where will "Canadian" pharmacies source products from? Hopefully not people like the Bansals, but we’ll never really know.
• How will we stop consumers from buying from “bad” pharmacies? I bet the Bansal’s online pharmacy customers had Canadian flags on their websites.
• Who will regulate non-U.S. pharmacies? The FDA does not regulate or control the buying practices of domestic retail pharmacies. Fans of reimportation have yet to explain how a U.S. government agency will ensure the safety of foreign sources. And keep in mind that the DEA, not the FDA, went after the Bansals.

In my opinion, politicians are abdicating their responsibilities and endangering public health by opening up diversion doorways for criminals. Good news for the criminals who might follow in the Bansal's footsteps, but bad news for you and me.

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On a happier note, Jayne Juvan, the legal brains behind Juvan's Health Law Update, just made my Monday morning by recommending this blog to her readers. Thanks, Jayne! I'll do the same and suggest that you all check out Jayne's weekly legal update.

The Attack on Generic Profits in Drug Channels

Today’s Wall Street Journal has a very good overview of key issues for the generic industry, such as biogenerics and the FDA’s generic approval process. See Democrats’ RX? Generics.

However, I wonder if this renewed political focus on generics will ultimately reduce the profits of pharmacy chains and wholesalers. Companies that could be affected include CVS Corp (CVS), Walgreens (NYSE WAG), and McKesson Corp (MCK), to name just a few.

As faithful readers of this blog know, the supply chain – wholesalers, retail pharmacies, and mail order – get a larger share of total prescription drug revenue from generics. Profits on generic drugs now subsidize the retail and wholesale distribution of much more expensive branded products. (See my May post Will unbundling crush pharmacy profits?).

How profitable are generics? For fun (?), I went back to the 2004 CBO report Medicaid’s Reimbursements to Pharmacies for Prescription Drugs, which studied Gross Profits per Script (GPS) for pharmacies under the Medicaid system. Note that the study refers to GPS as “markups” and excludes any co-payments received from patients.

Gross Profit Per Script for Pharmacies in Medicaid (2002)

• Brand-name Drugs = $13.80 (14%)
• Older Generic Drugs (pre-1997 launch) = $9.90 (70%)
• Newer Generic Drugs (1997 to 2002) launch = $32.10 (70%)

In other words, filling a generic Medicaid prescription earned a pharmacy $18.30 more per script in 2002. These data come from 2002, so they go a long way to explaining why the new Federal Upper Limit for generic reimbursement under Medicaid will shift to Average Manufacturer Price (AMP) + 250% rather than an AWP-minus model. (See McClellan and the Magic AMP and AWP Ain’t What Matters for background.)

The channel's genertic profits are also under visible attack in the minds of consumers. As I pointed out yesterday, Wal Mart Stores Inc (WMT) is aiming at the pharmacy industry’s weak spot, encouraging pharmacies to argue that consumers should ignore price. (See Wal-Mart Raises the Stakes.)

But let's not forget that these profit margins provide powerful incentives for generic substitution by the channel, which has in turn lowered drug spending by employers and the government. Key scenario questions that I am now considering with my clients:

1. How will manufacturers and payers manage the costs of getting products from the factory to the patient?
2. What will happen to the retail and wholesale channel if generic margins come down?
3. What parts of the supply chain will retain reasonable profit opportunities?

Hey, I’m just one voice out there, so please don’t forget Newton’s Second Law of Consulting: For every expert, there is an equal and opposite expert.

Have a Happy Thanksgiving!

Wal-Mart Raises the Stakes

Does anyone still believe that Wal-Mart will not shake up the pharmacy industry?

Wal Mart Stores Inc (WMT) just expanded its $4 generic program to 38 states and more than 3,000 pharmacies. See Wal-Mart Adds 11 More States To $4 Prescription-Drug Plan. Check out Bob Nease’s succinct overview of Wal-Mart’s updated list at Libratto.

Most interesting is the fact that Wal-Mart added pravastatin (generic Pravachol), a $2.3 billion blockbuster for Bristol-Myers Squibb Co (BMY) in 2005. Sounds like The Empire Strikes Back scenario in which I predicted that the list would be broadened to include blockbuster generics. In an online poll, that scenario got 56% of the votes vs. 44% for Much Ado About Nothing. (I stopped the voting after two weeks, so last week’s news did not affect the results.)

According to Wal-Mart’s press release: “To date, as new states have been added to the program, 2.1 million more new prescriptions have been filled in those states as compared to the same time periods last year.” If true, then Wal-Mart is increasing its average number of scripts per pharmacy by about 20% per store. I suspect that incremental costs for this additional volume are relatively low at Wal-Mart, making the program a financial win.

So far, no one has any real data on which chain or format is being affected by Wal-Mart. Most obviously, cash pay customers will switch first. Chains appear less vulnerable because customers with third-party insurance may not save very much versus standard co-pays.

However, chains are now in the awkward position of telling customer to ignore price, an argument that seems curiously at odds with the trend toward consumer-driven health care decision making. Walgreens (NYSE WAG) took the bait and issued a bizarre press release telling customers to focus on “convenient locations, close-in parking and unique pharmacy services.” Ouch. How long until CVS Corp (CVS) or Walgreens cave in and lower their generics margins? PBMs also risk a margin squeeze if payers question their generic dispensing profits versus Wal-Mart.

Bottom line: I stick by my prediction made when the plan was first announced in September: Wal-Mart's Generic Pricing Will Trigger Big Changes. My two criteria for the magnitude of the near-term impact were (a) how well Wal-Mart rolls out the program, and (b) how quickly (if ever) they include more mainstream generic products. (See Reconsidering Wal-Mart -- but just a little.) The national roll-out has been very fast. I predict generic Zoloft and Zocor are not far behind.

New York Times editors read this blog!

I don't normally agree with the New York Times editorial page, but it looks like they agree with me.

On Monday morning, I posted CMS as a PDP: A Part D compromise? suggesting a compromise on Part D that could avoid a Presidential veto:

"Medicare beneficiaries will have the option, but not the obligation, to enroll in a national plan based on directly negotiated prices. The current system of regional PDPs will remain, in effect putting the government into competition with private plans."

On Tuesday morning, The New York Times ran an editorial called Lowering Medicare Drug Prices, which states:

"The approach that most appeals to us would direct the secretary of health and human services to set up one or more government-operated drug plans to compete with the private plans. "

Interesting coincidence, don't you think?

The FDA on PDMA

I’m blogging to you live from my hotel at the NACDS/HDMA RFID conference so I can opine real-time on the FDA’s hot-off-the-press pedigree documents.

The FDA released its final Compliance Policy Guide (CPG) and PDMA Q&A this morning shortly after Acting FDA Commissioner Andrew von Eschenbach addressed the conference. (All documents are available from the FDA’s new PDMA Resources page.) Ilisa Bernstein, Director of Pharmacy Affairs at FDA, also gave a presentation describing the Q&A.

Naturally, it’s a treat to hear directly from the FDA on the day new guidelines are released, even if the comments did not stray too far from the published documents. Here are three points that I took away from the presentations:

• No more stays – The PDMA will be implemented on December 1, 2006. Dr. von Eschenbach indicated that the agency is considering no further stays, casting serious doubt on the legal actions being pursued by some secondary drug wholesalers. (See my earlier post Channel Conflict as Pedigree Looms.)
  
• “Some must…all should” – Both FDA officials used the phrase “some must … all should” in their respective presentations. The PDMA excludes manufacturers and Authorized Distributors of Record (ADR) from the requirement to provide pedigree. To my ears, the phrase “… all should” indicates that the FDA does not want to see the ADR exclusion become a loophole to avoid pedigree.
  
• Manufacturers gain leverage – The PDMA makes ADR designation more important. Manufacturers could use the concept of a “written agreement” associated with an ADR to enshrine supply chain business requirements that might otherwise be covered in fee-for-service or distribution service agreements. I predict that ADR agreements will play a role in the next round of fee-for-service negotiations.

Marketplace Impact

In my last PDMA post, I speculated on three possible outcomes from the PDMA:

1. Wholesalers with an ADR relationship will pick up volume.
2. Manufacturers will broaden their ADR networks.
3. The marketplace will create a solution for pedigree.

The FDA’s “...all should” comments make option 3 seem the most likely.

Mark Parrish, newly appointed as CEO of Healthcare Supply Chain Services at Cardinal Health Inc (CAH), stated at the conference that Cardinal will continue to service some of its existing secondary wholesaler customers after December 1. AmerisourceBergen Corp. (ABC) highlighted its intention to provide pedigrees in a press release this afternoon. ABC noted that “…customers are charged fees that allow the Company to recover the cost of generating the pedigrees.” (I’ve heard that the monthly pedigree service fee is $5,000 for the first ship-to location, and $1,000 for each additional location.)

RFI-Do or RFI-Don’t?

Dr. von Eschenbach said that track-and-trace means "from the assembly line to the dispenser." Unfortunately, this year's RFID conference has once again provided little substance on the use of RFID by pharmacies to authenticate inbound product.

This is the major unspoken limitation in using RFID to make the supply chain more secure: How do we stop pharmacy buyers and consumers from purchasing outside of a theoretically secure supply chain? I refer to this challenge as Our Demand Side Counterfeit Drug Problem. It's the pachyderm in the parlor. And unless we start getting real about this problem, then we won't really be meeting the FDA's needs or securing the supply chain.