Global third party logistics companies are unlocking the pharmaceutical distribution market, but the specialty distributors still have a firm hold on pharmaceutical reverse logistics. The reason is knowledge. Although the general logistics companies and carriers are experts at moving goods, the highly regulated space occupied by pharmaceuticals requires special knowledge and procedures.

The emphasis on cost containment, however, is providing the big break that large, integrated logistics providers need. Some pharmaceutical manufacturers are combining commercialized products and clinical trial compounds under one logistics contract for greater savings. They’re also beginning to consolidate return shipments and use shared, secure facilities.

The pharma difference

Pharmaceuticals are not like snow blowers or sneakers. When those products are recalled or returned, they can be repaired, resold, or donated. Pharmaceuticals, in contrast, are destroyed.

 The need for destruction relates to the inability of manufacturers to ensure pharmaceuticals were handled properly after leaving their control and to ensure a secure chain of custody. To put this into perspective, consider temperature. Storing snow blowers, sneakers, or most other products at ambient temperature isn’t harmful. But, for nearly half of the new drugs entering the market, maintaining a specific temperature range is imperative. Temperature excursions can reduce potency, reduce shelf life, or alter a drug so it becomes harmful. Live attenuated cholera vaccine is a good example. Stored between 2-8° C, its shelf life is one year. But at room temperature, its shelf life is seven days.

“The regulatory aspect of pharmaceuticals is among the most heightened of any product category,” explains Jeff Pepperworth, president of reverse logistics at Inmar, Winston-Salem, NC. Within the pharmaceutical industry, track and trace requirements proving chain of custody are stringent and are only growing more robust. But, from manufacturers’ perspectives, chain of custody verification breaks down once the drug reaches its destination.

Pharmaceutical returns also require more vigorous security than most other goods because of the high value of the product. One year’s supply of many newer pharmaceuticals can exceed $200,000. The most expensive, however, is Soliris, by Alexion Pharmaceutical. Targeting a rare blood disorder, it costs $409,500 for one year’s treatment. More common drugs have lower prices. It’s not unusual for cancer therapies to cost $50,000 per year, while treatments for schizophrenia typically cost about $7,000—just for one drug. For organized crime, pharmaceuticals can generate a hefty return on investment. According to World Health Organization estimates, 10 percent of global pharmaceutical sales involve counterfeit goods.

To safeguard their products and the patients who rely upon them, pharmaceutical manufacturers ensure that returned drugs are incinerated.

Streamlined returns

Traditionally, when returns arrive at a distributor, the distributor applies the manufacturer’s retailer policies and pricing to ensure the pharmacy, hospital, or wholesaler receives credit for the return. Then, the distributor sends the returns to a third party returns processor for destruction.

Pharmaceutical logistics provider Inmar streamlines that two-count process with what it calls the One Touch Advantage. In that model, returns arrive at Inmar and are validated, policy and pricing policies are applied, accounts are reconciled, reports are filed online for the manufacturer and the shipper, and the pharmaceuticals are destroyed. Online proof of destruction is then provided to the manufacturer.

“One Touch Advantage removes excess handling, which reduces the chance of errors and reduces costs,” Pepperworth says. It provides faster charge-backs and eliminates duplicate processing fees and unnecessary transportation costs. It also lowers the risk of diverted shipments.

Not all returns are credited. But, when manufacturers do credit returns, reverse logistics providers have the additional challenge of ensuring that returns are authorized, quantities are validated, and returns data for lot number and shipper are matched against the original documentation.

Returns for credit, primarily, are made by retail pharmacies or wholesalers and typically involve drugs that are three to six months from expiration, explains Larry Hruska, president at GENCO Pharmaceutical Services. “Consolidated returns tend to arrive from a pharmacy chain in a box with a few hundred bottles of all shapes and sizes,” he explains.

The shippers list the returns package and formulary. Logistics organizations receiving the returns match the contents against the packing list and National Drug Code numbers and sort the returns for lot, expiration date, damage, prescription labels, quantity, and anything that affects the drugs’ ability to meet the manufacturer’s return policy. “The logistics provider then lets the shipper know what to expect from the manufacturer,” Hruska says. “There aren’t a lot of changes. Returns are returns.”

What has changed is speed. GENCO transmits financial reimbursement information in an average of four days, versus up to 30 for some of its competitors, Hruska says. “Speed to process is one of the things that sets us apart from competitors, allowing us to accelerate any off-invoice deductions and minimize the financial mess that delays create for customers,” he elaborates.

Data management

Most of the changes in reverse logistics are at the pharmacy level. “There is more scrutiny around what pharmacies carry and around prescription rates,” Pepperworth says. The best distributors today are providing data to help them manage product flow and costs.

GENCO uses its technological solutions to directly benefit its pharmacy customers. By drilling down to items in the pharmacy, its analytics technology enhances visibility and helps pharmacies benchmark themselves against comparable segments of the industry. “We see this as helping the pharmacies improve their own processes,” Hruska explains.

“The key (to improving reverse logistics) is better inventory management throughout the supply chain so that excess products with short expiration dates can be returned successfully,” Hruska continues. For retailers, that means creating a clear policy that streamlines the returns process, developing a methodology retailers can use to ensure they pull the product at the right time, and identifying where pharmacies aren’t compliant. For manufacturers, it involves showing them opportunities to model and accurately forecast product returns from both branded and generic products.

Manufacturers also are benefitting. Inmar uses its analytic applications to identify drugs that are returned as well as problems around a formulary and other issues, and even to identify prescriptions that were issued but not filled or refilled. Such information helps pharmacy management and also contributes insights to pharmaceutical manufacturers’ analyses of outcomes data, which is needed to advance the ability of therapeutics to be tailored to individuals. (That emerging ability is called personalized medicine, or pharmacogenomics). “For outcomes data to be useful, there must be large amounts of data,” Pepperworth points out. Pharmaceutical reverse logistics providers are in position to obtain part of that data.

Recalls

Product recalls are similar to returns but require additional identification and have a greater sense of urgency. Recalls and returns differ mainly because of the notification aspects, Hruska says. “We have protocols for notification, including business reply cards. Information regarding what has been returned is captured in our system for FDA compliance purposes.”

There’s also more regulatory oversight. For example, Pepperworth adds, “Pharmaceuticals may need to be held for inspection by regulators.” Pharmaceutical manufacturers also may need to examine samples.

As Richard Smith, managing director of life science specialty services at FedEx Express explains, “Pharmaceutical companies want to tie in returns to a specific batch, so more identification is needed for recalls than for returns. This often is tied to legal actions. It may be only a single batch that contains defects.” For example, the October recall of Astellas Pharma’s Advagraf 0.5-mg time-release capsules by the European Medicines Agency involved only 12 batches. Ensuring that the correct batch is recalled affects patients but also has significant financial ramifications. Therefore, it’s important to ensure that only the affected batch is recalled.

Emerging markets

As a highly regulated industry, “Pharmaceutical companies are notoriously risk adverse,” Sean Smith, VP of clinical logistics at Fisher Clinical Services, says from Fisher’s Horsham, UK, headquarters. Cost constraints, however, are causing them to look carefully at their risk profiles and change the way they handle logistics.

“Local facilities owned by logistics providers are becoming more common as pharmaceutical companies get out of the bricks and mortar business of distribution,” Smith says. Fisher Clinical Services manages carriers and packs, assembles, and distributes therapeutics used in clinical trials.

“Particularly as pharmaceutical manufacturers move into the developing world—mainly Latin America and Asia—they are establishing in-country collection strategies and are consolidating shipments,” Smith says. It is more cost effective to collect therapeutics and combine them in a single shipment from, for example, India or Brazil to the U.S. or EU than to make multiple shipments.

Because these compounds are returned for destruction, the requirements for temperature control and express delivery that are present on their outbound transit are non-existent for their return. Consequently, Fisher sees some customers using cheaper ways of carriage, substituting ocean freight for air freight in some instances.

Consolidating pharmaceuticals returns has inherent risks, however. Every hand-off and each delay in the supply chain increases the chance that criminals will divert the drugs into the black market where expired products will be diluted and labeled as saleable. The risk depends upon the location of the facility and the drug.

Integration

Traditionally, pharmaceutical companies “owned the entire value chain from an idea in a researcher’s lab to a pill in a patient’s medicine chest,” recalls John C. Lechleiter, Ph.D., chairman, president, and CEO at Eli Lilly and Co., speaking at the recent Brookings Institution Conference on Regional Innovation Clusters: Advancing the Next Economy. “As we entered the 21st Century, Lilly adopted a new model—a “fully integrated pharmaceutical network…linked through partnerships, alliances, and other relationships.”

Integrated networks are becoming more common throughout the pharmaceutical industry. The reason is simple. As Lechleiter explains, integration expands opportunities and lets companies leverage financial resources. This trend extends to logistics.

“There is a general trend toward integrated logistics,” according to Peter Bonte, VP of service logistics at DHL http://www.dhl.com. “The move to globalization has increased complexity, so logistics providers, increasingly, are orchestrating logistics end to end. That opens opportunities for large global firms like DHL and FedEx to enter the logistics market with lower costs than specialty firms, FedEx’s Smith adds. Typically, these large firms ease into life sciences returns with medical equipment and devices before undertaking pharmaceuticals.

DHL, for example, handles recall solutions for medical devices, applying best practices learned in the information technology sector. As Bonte says, “We had seen several recalls that often were inefficient and poorly organized, so we built a solution for our customers to handle recalls in a more structured way.”

That solution consists of Recall Alliance and Recall Action, Bonte explains. “With Recall Alliance, we work with customers to build knowledge around their products and the most efficient recall procedures.” The most basic level focuses on industry best practices, systems, and management. The premium level also includes readiness, audits, and certifications. “Recall Alliance is in the initial stages of launch,” he says. It debuted in Europe and launches in Asia and America in 2012.

Recall Action is the execution arm, ensuring access to the right logistics. DHL’s services, parts, and logistics program maintains parts for some hospital equipment and can screen or repair some instruments. More complex repairs involve customer-certified repair facilities.

“The integrators are as good as specialty firms in certain lanes, but the specialty firms intervene faster when problems occur,” Fisher’s Smith notes. Fisher Clinical Services has tracked performance for its clients and reports that specialty firms typically resolve issues within hours, while the large integrators take weeks. Response time and intervention are bigger concerns on outbound shipments, where delays affect patients’ health and temperature excursions harm drug quality or potency.

The drive for cost containment is causing pharmaceutical manufacturers to combine their clinical and commercial logistics operations under one logistics contract, Smith explains. In established lanes, that strategy is effective. In developing regions of the world, however, Fisher Clinical Services advises its clinical trials customers to use specialized service providers to ensure that therapeutics, diagnostics, and patient samples can travel among sites easily.

“During clinical trials, there are three types of returns,” Smith explains. “There will be global recalls if there are quality or process concerns with the drug, and returns when clinical trial patients withdraw from a trial or the drug’s development is halted. There also will be returns of clinical samples (such as tissue samples) throughout trials that help determine the therapeutic dosage a patient will receive,” he says. Biologic samples trigger certain customs concerns and must be maintained at specific temperatures throughout transit. Temperature excursions can render a sample worthless.

Technology

At GENCO, “Our customers are concerned about getting returns quickly, accurately, and at the lowest possible cost,” Hruska says. GENCO, therefore, is streamlining its processes by installing new scanners, sorters, and other automation technology.

“Track and trace technology is still an issue,” Hruska says. “California enacted pedigree rules and regulations that become effective in 2015 that are creating a challenge for everyone in the industry by mandating track and trace at the vial level. We can’t work state-by-state. The federal government must set the standard,” he insists.

RFID was once hailed as the solution, but the pharmaceutical industry had concerns about the effect of radio frequencies upon biologics. Therefore, Hruska continues, the pharmaceutical industry is abandoning RFID for outgoing distribution. Two-dimensional barcodes are gaining favor, instead, because of the larger amounts of data they can encode. “There is a lot of discussion, but there’s no (standard) system to track them,” Hruska says.

The concerns that accompany RFID for outbound distribution are invalid for returns, however. “RFID is valuable for return logistics,” Hruska says. “We send a tamper-proof evidence bag with an embedded RFID tag embedded to the pharmacy,” for high security Schedule 2 returns. The RFID tag allows them to be sent to a secure vault immediately upon receipt.

The future—parallel logistics

The development of personalized medicine means that fewer, but more expensive, drugs will be developed. With average costs of $1 billion and 15 years to bring a drug to market, the pharmaceutical industry is looking at ways to reduce those costs. Some involve clinical trial logistics.

Today, when patients drop out of trials or trial enrollment is insufficient, the drugs shipped to a trial site are destroyed. There is discussion, however, about developing regulatory requirements for drug storage at clinical trial sites like those for manufacturing and distribution, according to Fisher’s Smith. If that occurs, it may be possible to shift drugs between trial sites and thus reduce overage, transport less material, create fewer returns, and reduce the need for disposal.

That future remains years distant, however. For the foreseeable future, the best strategies for reducing the costs of pharmaceutical returns involve process improvements and integrated logistics. wt