Supply Chain: Scanning the Future

The state of the pharmaceutical supply chain can be summed up in three words: serialization is coming. The era of "track and trace" is upon us. Although it is unclear at this moment what level of tracking will ultimately be required, companies need to be prepared for regulations that will alter the way pharmaceuticals are packaged and shipped. New laws will raise your risk profile—particularly in ensuring product safety.

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The changes are occurring as the act of manufacture itself has become a strategic global priority for Big Pharma. Unlike a decade or two ago when much of the production was handled in-house, pharma is relying more on contract vendor manufacturing to keep pharmacy shelves full. As more and more of the R&D and manufacturing functions are outsourced, the importance of a safe and secure supply chain becomes ever more prevalent.

In response to some high-profile thefts and product counterfeits that have occurred over that past few years, governments around the world have turned their attention to securing the supply chain through regulation focused on product serialization.

Currently, during manufacture every batch of pharmaceuticals is assigned a lot number. Each container of product produced in that batch has the same lot, or serial, number. This allows the manufacturer some ability to track its product as it moves through the supply chain to its final stop at the pharmacists' bench. Product is being followed, but it is being tracked with a wide net. If there is a problem with the lot from theft, tampering, or counterfeiting the entire lot must be recalled—there is no way to differentiate individual containers produced in the same lot.

"The issue with pharmaceutical cargo is not so much the impact of the product itself that is stolen [or counterfeited]," says Don Hsieh, director of commercial and industrial marketing at Tyco Integrated Security. "The products are made in lots. If that particular lot has to be recalled the cost will be in multiples of the original loss."

Under the upcoming regulations, product will need to be traceable at the unit level. Giving each unit it own serial number will allow individual packages to be tracked up and down the supply chain, allowing for greater security and lessening large-scale recalls.

The United States and Europe have fallen behind Turkey, Italy, Chile, and even India and China in the area of regulatory requirements for track and trace and are in the process of playing catch up. Although each entity is proposing different levels of traceability, one thing remains constant: increased regulations are on the way.

Legislation: a closer look

United States. The idea of unit serialization is not new—the California Board of Pharmacy has been working on a bill that will require an electronic pedigree at the unit level for over a decade. Under the legislation that is scheduled to go live on January 1, 2015, every change of ownership of an individual unit as it passes through the supply chain needs to be recorded and available for inspection at the pharmacy level. At least 50 percent of a company's product that is sold in the state will need to comply with the new legislation by the start of 2015, with the remainder on January 1, 2016.

As the California initiative gets closer to implementation, the federal government is working on legislation simultaneously that would supersede the California law. The House and Senate approved a draft version of the Drug Quality and Security Act in late September. Should the proposed legislation be enacted (www.govtrack.us gives it a 42 percent chance of being signed into law), it would supplant any and all state legislation on track and trace and ePedigree.

Despite the uncertainty surrounding which legislation will ultimately become the standard, industry is focused on the January 2015 deadline for implementation and the California ePedigree legislation, as it is likely to come on line first.

"I would say that nearly half of the firms that we have polled have already started their pilot testing," Jamie Hintlian, principal, Americas at EY, told Pharm Exec. "It is a very tight pack. No one is out front in the sense that they have 100 percent of their lines and products serialized. I think most are going to come close to hitting the 50 percent mark by January 2015, but there are concerns. Concerns about how much do you invest versus hedge because maybe there will be a federal law that trumps California. While many would like to wait and see, they are not ready to play chicken with the state of California, the 12th largest economy in the world."

The proposed legislation gaining traction in Congress does not go as far as the California initiative, at least at the start. The main points of the proposed bill, H.R. 3204, include:

» Four years after enactment, manufacturers need to serialize each package of product distributed within the United States.

» At the start of 2015 for manufacturers and July 2015 for dispensers—as product changes ownership, companies need to provide or receive transaction information, history, and statements in a single document (paper or electronic). Four years from enactment, all information needs to be exchanged electronically.

» Ten years after enactment transaction information needs to be exchanged in an electronic matter at the unit level starting at the point of manufacture.

The glaring difference between the California and Federal proposals is the timeline required for full serialization at the unit level. California calls for unit serialization on January 1, 2015, while the Federal legislation requires the same four years after the Drug Quality and Security Act takes effect. The differences are forcing industry to decide whether to pull for a particular piece of legislation. But which one?

"To some degree, industry's preference for one piece of legislation over the other will depend on where organizations are on the readiness continuum," Hintlian says. "It appears based on the recent September agreement between the House and Senate, the federal direction may be closer to California's direction, as it requires serialization at the package level. In this case, organizations that have made progress with their California compliance programs will likely continue with their programs, although some may alter their timelines for deployment based on how the federal direction is finalized."

European Union. Like their US counterparts, EU lawmakers are in the midst of hammering out some form of serialization legislation. The Directive 201⅙2/EU the European Parliament issued in June of 2011 gives EU member states until 2016 to enact serialization legislation. Just like in the United States the exact legislation is unclear—with each of the 28 Member States being charged with creating its own legislation things are bound to get increasingly complicated.

Unlike the proposed US legislation, the likely EU laws will focus on the authentication of the product at the time of dispensing, instead of the individual movement of the product through the entire supply chain. When a pharmacist scans a blister pack (the most common form of dispensing in Europe) at the counter, the product's serial number would be run through a database to check if that particular number was flagged for any reason. If the product was flagged the pharmacist would be unable to dispense.

Biggest threats to the supply chain

Counterfeit pharmaceutical drugs are becoming more and more prevalent around the globe—as counterfeiters become more sophisticated it becomes increasingly difficult to tell the difference between a counterfeit product and the real McCoy, especially at first blush. While there will always be a black market for prescription drugs, the adoption of stricter tracking of pharmaceuticals as they cycle through the supply chain will make it tougher for counterfeits to make their way into the legitimate trade.

UPS's 7th annual "Pain in the (Supply) Chain Survey" polled healthcare executives across the globe on their top business and logistics concerns. According to the report, 48 percent of those polled believed that counterfeiter sophistication is growing faster than countermeasures. In Asia, 76 percent of those polled were concerned about product security, significantly more than their peers elsewhere.

"As more and more companies are moving into the Asian, Latin American, and African markets, the length of the supply chain and the handoffs have increased," William Hook, vice president, global strategy, healthcare logistics at UPS said. "Every time the chain is increased you leave a vulnerable point."

As the supply chain lengthens in a global marketplace, the possibility of theft increases as well. While most would agree that the supply chain in the United States is relatively secure from theft, the same cannot be said of other areas of the globe.

"On a percentage basis, pharmaceutical theft in the supply chain is not high," Hsieh says. "What is interesting is it is usually one of the higher value products that are stolen. There was a high of several million dollars per theft incidence a couple years back. Then many pharma companies put a limit on the amount that can go out in one shipment. Last year the average pharmaceutical cargo theft was valued at about half a million dollars."

Be Proactive—and Think Small

In anticipation of serialization legislation taking effect, pharmaceutical companies need to review not only their own internal practices, but also those of their outsourcing partners. As more and more work is outsourced the possibility for mishandling of product becomes greater and greater, and the need for technology solutions for both sides of the outsourcing relationship becomes more evident.

"We are seeing OEMs who are struggling with small contract manufacturers who don't have systems that can facilitate the sharing of product information," John Danese, senior director, life sciences at Oracle says. "I have spoken with some of our OEMs who are preparing for the California ePedigree regulation and other global track and trace regulations. They say some of their CMO's idea of an advanced data sharing mechanism is a fax machine. Additional electronic communication is needed moving forward as these regulations come online in order for these small companies to be able to exchange the necessary data."

The global pharma supply chain continues to grow with each passing year. With every additional link in the chain greater risk follows.

Timothy Denman is Pharm Exec's Senior Managing Editor. He can be reached at tdenman@advanstar.com.