Stacking the chips against counterfeits

September 1, 2007
Colin Walsh
Pharmaceutical Technology Europe
Volume 19, Issue 9

Is consolidated distribution the key to combating counterfeit drugs and parallel imports?

Gambling isn't only about the odds, it is also about the stakes, and they don't get any higher than people's lives. According to WHO, the global counterfeit industry is worth an estimated $32 billion a year. This means that the global odds of a medicine being fake are one in ten. Protecting the supply chain from these counterfeits and competing with parallel-imported drugs are two of the biggest challenges now facing the industry.

This increasing threat of counterfeit drugs has really grabbed the attention of Big Pharma and thrust their supply chains into the limelight. Between October 2005 and October 2006, Pfizer reported three separate incidents of counterfeit Lipitor, the world's largest selling drug in its UK supply chain. More recently, the recall of Eli Lilly's Zyprexa, Sanofi-Aventis' Plavix and AstraZeneca's Casodex represented the first confirmed cases of counterfeit drugs entering the UK supply chain through parallel trade.

Consolidated distribution

Consolidated distribution is increasingly viewed as a means to secure and protect drug distribution. In March 2007, Pfizer signed an exclusive UK distribution deal with UniChem; this was followed in April by a similar deal between AstraZeneca, UniChem and AAH Pharmaceuticals.

These agreements fundamentally change the drug distribution process: throughout the distribution process the stock is owned by the manufacturer. This increased supply chain control offers real opportunity for drug companies to combat counterfeiting while simultaneously increasing distribution efficiency and improving competitive advantage.

Simplification and efficiency

Few industries experience the supply chain complexity of pharma: pharmacies and dispensing doctors require twice-daily deliveries of a wide range of drugs to meet patient needs. Under the new agreements, end-to-end drug ownership creates opportunities for manufacturers that can be achieved through process simplification and redesign.

Immediate benefits such as improved service levels result from the visibility provided by a single point of contact between the distributor and manufacturer. In part, this is achieved by implementing common integrated processes and systems, which streamline data accessibility and analysis. Furthermore, the ability to act on this analysis and implement process improvements is made easier by the smaller number of stakeholders and partnership approach.

More strategically, consolidation will improve supply chain responsiveness through rationalization of stock between delivery centres. While this may ultimately reduce the number of delivery centres required, it improves the ability to meet consumer demands and requires a less labour-intensive stock management process.

Control and comparative advantage

The consolidation model provides the manufacturer with visibility of the drug price at the most critical point of the distribution process: sale to dispensing points. This control allows them to potentially improve their competitiveness relative to parallel imports through selective allocation of negotiated discounts.

By monitoring sales at specific dispensing points, pharma companies can identify whether a pharmacist has substituted its product for a parallel import. Depending on the nature of the product and the market conditions, they can choose whether to apply a greater proportion of the agreed discount to their product to regain price parity with the parallel import while maintaining the net discount passed on to pharmacists.

Improving pharma's hand

Another opportunity that is greatly enhanced by supplier consolidation is RFID. The technology transmits information from products and shipments to a wireless reader, and stored within a central database. Such information is vital to a well-managed pharma supply chain: not only does it make combating counterfeit drugs easier, it creates the possibility of customized, automatic stock replenishments for individual dispensing points.

Realizing these benefits requires demonstrating to both customers and patients that service levels and costs will not be adversely affected. Manufacturers must ensure that both during and after the transition to exclusive distribution, the entire market can be served without disruption, thereby avoiding further erosion of the industry's already fragile public image.

A winning hand

It is clear from the response from industry that many pharma companies expect significant benefits to be achieved from the recent exclusive distribution deals. These are likely to include increased supply chain efficiency, improved security and enhanced competitiveness against parallel-imported drugs. These benefits can improve the pharma bottom line and, more importantly, reassure patients of the provenance of their essential medicines — which deals a winning hand to the industry, the NHS and patients.

Colin Walsh is head of life sciences strategy at Capgemini Consulting (UK).