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Pharmaceutical Executive

COUNTERFEITING IS A THORN IN THE SIDE of many industries, impacting everything from wristwatches to toys, film, music CDs, and more. However, the issue is amplified when one considers the impact counterfeiting can have on consumers' health—even their lives—when tainted or fake products make their way through the pharmaceutical supply chain and wind up in patients' medicine cabinets. Placebo drugs from counterfeiters and other problems related to a non-secure drug supply chain are no longer acceptable or necessary risks.

To rectify the situation, various states and countries have passed or are in the process of passing regulations to address the counterfeiting problem. At this point, more questions than answers have surfaced, stalling efforts to implement new systems and technologies, such as electronic pedigree and serialization, which can help companies send drugs securely through the supply chain until they reach patients.

To build the foundation for this approach, companies must implement a system of tracking, tracing, and serialization using the right technology for monitoring and identifying products. Such a system could include RFID, 2-D bar coding, or in cases where it makes sense, human-readable tagging. Certainly, the implementation of this infrastructure will be difficult. But the value that can be derived from ePedigrees—which can improve patient safety, operational efficiency, and profitability in fairly profound ways—far outweighs the cost.

California and Beyond

In the past, product tracking was limited to drugs that were more likely to face diversion. But now, California has passed legislation requiring item-level serialization and ePedigree for all pharmaceutical products, along with associated inter-operable systems for exchanging data. (Originally set for 2009, the deadline to be ePedigree compliant has been pushed back to January 1, 2011.) The California law is accompanied by a felony provision for non-compliance. Thirty-three other US states have passed or are considering passing similar legislation.


SHAREHOLDER VALUE
Meanwhile, California's legislation has paved the way for new federal considerations that could eventually eliminate the state-by-state approach. US Reps. Steve Buyer (R-IN) and Jim Matheson (D-UT) joined a hearing of the House Committee on Energy and Commerce for a bill that would mandate FDA to generate a unified track-and-trace pedigree standard for pharmaceuticals passing through the supply chain. The sponsors hope that their bill, the Safeguarding Pharmaceuticals Act of 2008 (HR 5839), will be included in FDA's Globalization Act, a broader piece of legislation the committee is currently preparing to present to the House.

When it comes to supply chain management, much more will change in the years to come. Some companies already recognize this, and while many focused early pilot programs and plans solely on California, there is a need to go global. With the uptick in interest among regulators worldwide, the industry must consider the possibility that serialization, pedigree, or similar requirements may soon be a reality around the world, with time frames for implementation converging with California's. There's also been a widening from the narrow focus on compliance to new ePedigree laws to a broader consideration of the strategic value that item-level serialization and ePedigree technologies could provide with their ability to improve a company's visibility and control of its supply chain. (See "Shareholder Value.)

Undeniably, implementing item-level serialization and ePed-igree is no small task. Unless companies address how to integrate individual initiatives across the supply chain, and how information generated in the process can be shared among all parties involved, the industry runs the risk of creating a costly and confusing approach to supply chain integrity. On the other hand, the benefits of improved patient safety, quality, integrity, and availability of standards make a compelling case for stepping up to the challenge. However, if they are going to meet mandates, companies must begin working now to enable their supply chain to be fully tracked, traced, serialized, and pedigree compliant.

The Value of Standardized Data

The combination of legislation requiring ePedigree and item-level serialization is forcing the industry (at least in the United States) to adopt a common standard for data exchange. Simply stated, data exchange is the transmission and receipt of information through a computer-linked network. The information that one entity is passing on to another must be readable, and transferable without question through the fastest means possible. Translational complexity can slow down the data exchange, and in some cases even make it impossible to send and receive data, which would not comply with the necessary steps for pedigree.

All organizations in the supply chain will need to install new systems, software applications, and hardware components to capture, expose, and exchange requisite data. Specifically, since every change of ownership will require the exchange of item-level product, shipment, financial, and other data in an ePedigree file, all parties must be able to extract such data from multiple legacy and Enterprise Resource Planning (ERP) systems. Once extracted, exchanging data with the other parties in the chain via an electronic product code information service, or EPCIS (the global standard for automating the exchange of RFID data, allowing cross communications), requires flexibility and standardization for an optimized result.

Although the means to exchange electronic data have been in place for quite a while—EDI 867 and 852 being among the most common standardized data exchange formats—there is no common standard regarding the kind of data that should be exchanged between parties in the life sciences value chain. For instance, a specific segment of the industry value chain may "blind" some data, so that not all sales transactions are fully transparent. Moreover, since EDI (electronic data interchange documents—the business data documents exchanged from one organization's computer application to another trading partner's) are not legal documents, companies have no incentive to certify that the data are accurate and complete. Standardizing the data that must be transferred by all entities in the supply chain (along with a standardized format) will help clarify this issue and facilitate monitoring of the three main elements involved in the passage of goods through the supply chain: the flow of the physical product, transactions, and money.


Going with the Flows
Several companies are on the road to achieving digitization of their supply chain. For some time, these companies were the exception, as most stood on the sidelines awaiting the 2009 date change, thinking and/or hoping that the mandate for pedigree would just go away. Now, with a new deadline, the industry is seeking road maps to comply with the 2011 deadline.

For these companies, it will be important to build in flexibility, as federal and international requirements will surely require changes to the core California compliance systems. Many countries are also trying to implement their respective versions to safeguard citizens, and until standards are set, changing dynamics will impact multiple supply chains globally. This flexibility is the most difficult part of the process, and could very well be where many in the industry stumble.

Adaptation and Further Opportunities

For now, the industry is still focusing on the technological and compliance aspects of ePedigree implementation. And it's true: First we need to get the basics correct, and afterwards, additional value is sure to come along.

Many organizations will opt for basic compliance at the lowest cost. This compliance will be certification of chain of custody passing from point to point, up to and including the pharmacy. Others, however, will likely consider how to address the threat of counterfeiting, supply chain synchronization, event management, and other value drivers as part of a larger strategy not only to secure the supply chain, but also add enterprise value. That will be a remarkable shift in supply chain management because it will enable companies to fix problems before additional cost and customer dissatisfaction impacts the enterprise.

The time it takes to react to a customer complaint or a patient sickness from a counterfeit drug can be very bad for business. And the risk of not interceding in time—potentially resulting in deaths—is potentially devastating for a company. Enabling this part of the strategy can have substantial positive effects from a marketplace as well as economic value perspective.

The ability to leverage pedigree data and master quick interpretation and adaptability can result in a potential competitive advantage. After all, the true value of ePedigree and serialization resides in the ability to mine transactions across multiple parties. For example, improved inventory management could help an organization manage its product inventory by enabling effective returns processing, reducing counterfeiting, verifying diversion activities, and more. In addition, forecasting and planning processes could become more timely and accurate, and distribution channels could be managed more profitably.

In the future, further opportunity abounds. Companies may implement sophisticated pattern recognition algorithms to spot irregularities within the supply chain so that potential issues can be exposed and addressed quickly. Another vision is to one day use ingestible identifiers that have the potential to translate information on a number of key attributes, from who is taking the product to the time of day the drug is taken. This could lead to sweeping improvements to the entire healthcare industry, from improving adherence to reducing insurance claims and hospital stays, as well as many other positive healthcare system impacts that are unimaginable today.

Eventually, organizations that adopt this vision of a secure supply chain will be able to turn compliance into a marketplace advantage for their goods and services. Just think about it: How much safer would you feel with a company that stakes its reputation on the authenticity of its product? Just as green packaging, safety warnings, and other marketplace messaging has resulted in value selling, there is reason to believe that compliance with state and regulatory socioeconomic protection mandates could also serve companies well—if they take steps toward implementing an effective, market-worthy solution.

For many companies, meeting such regulatory mandates, even with the extended dates, represents an operational and technical challenge. However, these efforts represent only a piece of the puzzle to improving patient safety and protecting a brand. As companies continue to expand their global footprint, they need to ensure that their collaborations support the strategies of a secure supply chain. Not inspecting or forcing compliance on companies in India, China, Latin America, or even EMEA and North America leaves a time bomb ready to explode at any time. Organizations must continuously evaluate all components of their supply chain, and require all parties to comply without question.

Beyond what companies themselves do, states and other government agencies will likely be crafting laws and regulations that deal with the transformational implications of the digitized supply chain. Such laws and regulations will also have to consider the new global risks and challenges, technological advancements, and the fundamental, overarching question of how digitization will work on a global level.

Joe Slota is director of Deloitte Consulting LLP. He can be reached at
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Matthew Humphreys is senior manager of Deloitte Consulting LLP. He can be reached at

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