What happens when you type ‘brand protection’ into a Google search? You’re presented with page after page of technical solutions created to address counterfeiting, diversion, and theft vulnerabilities. Ironically, these results also mirror a common perception of what brand protection is and indicative of the tactical concepts many look to implement before having a thorough understanding of the risks and developing a holistic strategy focused on prevention, monitoring and response. Why have so many fallen into this trap? The answers can be found within an industry that is awash in a sea of confusion due to a lack of consistency in thought, approach and standards.
So what does brand protection mean to your company? Is it merely window dressing, designed to adhere to the lowest common denominator of global, federal, state and customer compliance? Does it effectively mitigate risks to the patients and protect your company against legal action or similar liabilities? Better yet, does it safeguard against patient and company risks, and contribute to revenue optimization by creating a new level of internal collaboration that fosters greater data confidence across business lines, a more thorough understanding of commercial interconnectivity, and improved fact-based decision making throughout the organization. In today’s business environment where deep budget cuts and organizational downsizing have become all too common, the continued well-being of your patients, your brand protection program and your staff is becoming increasingly dependent on your ability to communicate, and the C-suite to understand, how brand protection contributes to the company’s overall objectives and financial performance.
Why have so many organizations failed to unlock and maximize the true value of brand protection and what are the market forces that have compelled companies to rush into tactical decisions? How can manufacturers break this cycle of dysfunctional behavior to develop sustainable programs that effectively protect patients, mitigate risk and contribute to the corporate top and bottom lines? Where do these threats originate from and how are they influencing the industry decision making?
Time and time again regulatory bodies have established deadlines for pedigree and serialization only to collapse under the pressure of special interest groups. The resulting postponements have created institutional pessimism; especially for business leaders who have experienced vendors who clamored that the sky would fall if they did not act immediately.
As leadership and guidance from the federal government on pedigree and serialization has meandered along, a robust wave of Federalism has washed across the country as states attempt to secure the supply chains within their borders. While the states are acting with the best interests of their citizens in mind, the country is morphing into a fragmented marketplace. The level of complexity is further compounded by the lack of consistency in the pedigree requirements from state to state relative to level of detail (serialization), types of products, processes (i.e. returns), or even if the pedigree itself is paper or electronic. Again, the states are well intentioned, but this uncoordinated approach is a losing proposition for all.
Manufacturers conducting business nationwide are expected to develop systems to comply with all of the different requirements, which increase administrative costs, opportunities for error, and inefficiencies for critical processes such as product recalls. This complexity creates outcomes and risks that are ultimately paid for by the patient and payers, while wastefully raising the overall cost of healthcare. Some state requirements also have loopholes: For example the Florida Drug and Cosmetic Act does not require a one-to-one corollary between the product and its pedigree. Consequently, pools of product and pedigrees are created at the wholesale level and returns, which require no pedigree, are mixed back into inventory. This type of product “commingling” or “churning” is the very gateway through which counterfeits enter the legitimate supply chain.
There also appears to be asymmetry at the federal level between initiatives at the Food and Drug Administration (FDA) and Drug Enforcement Administration (DEA) versus legislation passed or under consideration in Congress. A number of acts and programs have been proposed or are underway to address gaps in supply chain security. The Food and Drug Administration Amendments Act of 2007 (FDAAA) requires the FDA to establish much needed technology standards by 2010. In April, new DEA regulations under the Ryan Haight Online Consumer Protection Act of 2008 placed enhanced requirements on Internet pharmacies regarding site registration, information disclosure and reporting, and face-to-face medical evaluations prior to prescription issuance.
Despite all of the recognition and efforts to respond to the security exposures that exist in the current environment and the potential for the drug supply to be used as a weapon in an act of terrorism, the Pharmaceutical Market Access and Drug Safety Act of 2009 (S.525) (H.R. 1298) has been proposed, which includes in its findings: “[A]llowing and structuring the importation of prescription drugs to ensure access to safe and affordable drugs approved by the Food and Drug Administration will provide a level of safety to American consumers that they do not currently enjoy.”
The Act looks to bulldoze the way for drug importation similar to the model currently practiced in the European Union (EU) where the free movement of goods between member states enables pharmaceuticals to be traded across borders. Parallel trade (gray markets, diversion) has emerged as markets having the same goods at significant price variances created the opportunity for arbitrage.
There are some interesting lessons to be learned from the European experience, particularly with respect to “access to safe and affordable drugs.” In 2008, the European Federation of Pharmaceutical Industries and Associations (EFPIA) estimated the value of parallel trade across the EU was $5.7 billion in 2006. Since counterfeit products require gray markets to enter the legitimate supply chain, it is not surprising that according to the European Commission, “Compared to 2005, seizures of counterfeit medicines at the boarder of the EU have increased in 2007 by 380%”. Additionally, those expected cost reductions parallel trade advocates often tout for patients and healthcare systems have historically not been realized as parallel traders retained the arbitrage profits.
Supply Chain Dynamics
For years, wholesalers have wielded considerable power in the forward supply chain as consolidation and industry shakeout resulted in the emergence of the Big Three that dominated the channel by leveraging economies of scale and enhancing operational efficiencies. Today, the Big Three are finding themselves stuck in the middle, experiencing a loss of influence as consolidation among retail pharmacies and manufacturers transform previously fragmented markets.
Vertical and horizontal integration in the retail market is enabling “megachannels” like CVS Caremark, Walgreens and Walmart to demand more preferential discounts, and further develop in-house distribution competencies that threaten backward integration. Consolidation among manufacturers is providing opportunities for the review of legacy distribution contracts and cherry-picking of the most beneficial terms and conditions. High fixed costs, excess capacity created by recessionary downturns, margin pressure forward and backward in the supply chain, and challenges from third- party logistics providers, specialty distributors and secondary wholesalers are creating intense price competition for wholesalers. All of this change is not only threatening the wholesalers’ value proposition, but also creating an environment where gray markets and diversion flourish as the smallest arbitrage opportunity provides enough economic incentive to take the risk of acquiring product from secondary sources with product of unknown origin.
Competition for manufacturer market share continues to be intense as new product launches have decelerated; expiring patents open markets for generic alternatives and switching costs for patients remain low. New branded products making it to market are also not as likely to be blockbusters, but customized therapies for smaller patient populations. The level of industry rivalry is further increased as direct competition that normally occurs at patent expiration is experienced prematurely in the product lifecycle from identical gray market product.
It is understood gray markets negatively impact revenue and profit strategies and funds available for investment in research and development. There is also a reputational component that calls into question a company’s ability to manage it products that ultimately lowers the channels sensitivity to product availability in secondary channels, which lowers the barriers for counterfeits to enter the supply chain.
The ease of use and lure of cheap drugs continue to draw patients looking to lower out-of-pocket costs to the Internet. Despite all of the efforts to heighten awareness about the risks by the industry, regulatory agencies, and consumer advocate associations, the amount of business transacted online is higher than ever. In 2008, the National Association of Boards of Pharmacy reviewed more than 1,000 Internet drug outlets and found that 97% appeared to be operating out of compliance with state and federal laws or established patient-safety and pharmacy-practice standards; 93% did not require valid prescriptions; 25% did not secure patients’ personal information; and 61% offered foreign drugs not approved by the FDA for sale in the US.
A recent general practitioner survey in the UK revealed that of the 423 respondents, 25% indicated they had treated patients for adverse reactions caused by medicines bought over the Internet. The side effects ranged from allergic reactions to more serious responses from counterfeit medicines.
The Federal Bureau of Investigation (FBI) racketeering case involving the Affpower Web Pharmacy demonstrated just how sophisticated some of these Internet sites have become; employing three physicians, two pharmacists, one pharmacy operator, an administrator and manager, two physician and pharmacy recruiters, a credit card processor and eight affiliate website operators. Affpower spread its business operations around the world in countries including Costa Rica, Israel and Cyprus.
The sale of controlled substances over the Internet has been equally troubling prompting the aforementioned DEA-sponsored Ryan Haight Online Consumer Protection Act of 2008, and the United Nations International Narcotics Control Board (INCB) to issue guidelines, “Preventing the Illegal Sale of Internationally Controlled Substances via the Internet.”
With so many challenges coming from so many different directions, technology vendors have stepped up to the plate with a cornucopia of solutions. It is not surprising that with all of the brushfires, many brand protection professionals have opted to fight the ones burning hottest at the moment with an application or technology guaranteed to extinguish the threat. Unfortunately, the problem with this reactive approach is that quick fixes may address a narrowly defined vulnerability, but are rarely optimal in enabling a company to gain any strategic traction with a sustainable risk solution.
Some have also been lulled into a false sense of security believing that once a pedigree application or track-and-trace technology is put into production that transparency will be achieved and all problems will be solved. Unfortunately, this is a bit of wishful thinking and fails to take into consideration what the Blue Fin Group believes will be one of the unintended consequences of serialized track-and-trace; an increase in diversion due to the reduction of risk when buying and selling products from secondary sources that are traceable, visible, and authenticated.
The value of technology is determined by how it improves reach internally/externally, provides rich information and reduces transaction costs. Many in the forward supply chain are experiencing significant business model challenges so the rate of adoption has also been affected. If channel customers are going to have to pay-to-play, economic incentives are required to facilitate acceptance. The richness of information and reduction in transaction costs depends on what information the channel is willing to share.
Today, data is blinded, blocked and in some cases transferred for a fee. These challenges and expectations are not going to disappear as the channel partners will look to recover technology integration costs and take advantage of a future revenue stream generated by data sharing that will be virtually effortless.
To maximize the organizational value of brand protection, a company must have a thorough understanding of the following:
- What does brand protection mean to your company? Is it just compliance, brand protection or revenue optimization?
- What should be the scope of your company’s responsibilities?
- Who should be setting your strategy? Are all the touch points between brand protection and fuctional areas accounted for?
- What is the appropriate scope of the program—regional or global? Is your organization prepared for an increased degree of global trade?
- How do you prioritize and execute considering the scale of the issues?
- How might the risks change over time and how do you maintain resiliency?
In order to find clarity through all of this complexity, you need to develop a thorough understanding of:
- How brand protection applies across all the business lines in commercial operations
- How to identify the 40+ brand protection risks* (e.g. arbitrage opportunities, visibility, control)
- How to identify the areas of greatest vulnerability
- How to determine how the risks may evolve over the next 3-5 years.
Getting your organization ready
People change when the pain of maintaining the status quo exceeds the pain of the change itself. In all likelihood, your organization is so busy managing the day-to-day challenges it’s difficult to take a moment to step back to survey the landscape to think strategically. So where and how do you begin?
- Awareness – Do you and the key decisionmakers in your company understand how brand protection can be leveraged to not only protect the patients and company, but also optimize revenue? How is the conversation starting?
- Ownership – Since brand protection threats come from so many different sources, is it clear who’s responsible and accountable in your organization? Often with issues this comprehensive, shared responsibilities result in nothing ever being accomplished.
- Vision – Has your vision of brand protection changed?
- Objectives – Within your vision, how clear are the strategic objectives?
- Situational Understanding – What is the gap between where you are and where you believe your company and the industry is going over the next 3-5 years? What are the 40+ brand protection vulnerabilities mentioned earlier? What are your greatest points of weakness? What solutions would be optimal for your organization? How do you prioritize? What are your constraints, dependencies, capacities and capabilities, across people, process and technology? What are the business needs, requirements and opportunities to consider?
- Design – What are the different solution options to meet the business requirements, mitigate risk, and maximize financial performance? How does the plan evolve from year to year (multigenerational plan) to support the continued change?
- Business Case – What is the optimal solution and implementation plan to solve the business problem? What is the rationale and value? What are the costs and risks?
A brand protection strategy is an increasingly complex endeavor involving global threats to patients and organizations that are evolving at accelerated rates, diverse in nature, and originate from both good and ill intentioned constituencies. The era of having the luxury to wait and see is rapidly coming to an end as market forces create challenges that require proven prevention, monitoring and response strategies that effectively protect patients, mitigate risk and enhance financial performance. The organizational value of brand protection can be determined by answering two questions:
- Does your program effectively contribute to revenue optimization?
- Is it worthy of the trust your patients extend every time they put one of your drugs into their body?
ABOUT THE AUTHOR
Terry O’Neill is a Principal Consultant with Blue Fin Group and a recognized global expert in the areas related to brand protection and product security. Blue Fin Group is the premier management and technology consulting firm focused solely on pharmaceutical, biotech and medical device commerce. For further insight and reading on this topic, contact Terry (firstname.lastname@example.org) and request the Brand Protection White Paper.