Serialization And The Outsourcing Decision

By Rob Wright, Chief Editor, Life Science Leader
Follow Me On Twitter @RfwrightLSL

In three previous articles in Life Science Leader magazine (April, May, June 2012), Gail Dutton discussed the long road to serialization and the serialization planning process for pharmaceutical manufacturers and built the business case for implementing serialization. In this article, we discuss the impact of global serialization on choosing outsourcing partners. In case you are unfamiliar with the serialization regulation, let me quickly get you up to speed.

The California ePedigree law will go into effect in 2015 and includes the need for pharmaceutical manufacturers and repackagers to serialize (provide a unique code) drugs, all the way down to the smallest level of distribution at the pharmacy. Companies throughout the drug distribution supply chain will need to make reference to the original manufacturer serial number and each subsequent ePedigree as they are updated through the process of distribution. Estimates on the time required to implement such a program vary depending upon the size of the company and range from an optimistic six months to a daunting three years. Although serialization initiatives have been in place in other countries for several years, California’s serialization program is the most stringent, and it will take an act of Congress to prevent it from becoming the de facto standard for pharmaceutical serialization in the United States. This is not that far-fetched, as legislation may soon be included in bills relating to the Prescription Drug User Fee Act (PDUFA) reauthorization, which at the writing of this article, are in motion in the Senate and/or House of Representatives (see sidebar “The Delay Game”). Since other countries already have serialization regulations —  and since the United States will eventually have them in one form or another —  here is what you need to know about the impact of serialization on choosing outsourcing partners and the steps you should be taking (or observing your strategic partners doing) in order to be prepared.   

The Impact Of Global Serialization on Choosing Outsourcing Partners
If your company is a member of the pharmaceutical manufacturing supply chain and has taken a wait-and-see approach to implementing a serialization program, in some respects, the approach has paid off — up to this point. “Some companies who invested in solutions in 2008 eventually regretted it because the dates were subsequently pushed out so far,” says Dirk Rodgers, U.S. healthcare supply chain consultant and co-chair of a number of key technical work groups including GS1, an international not-for-profit association responsible for developing the most widely used global supply chain standards. That being said, experts agree that taking the wait–and-see approach is no longer advisable. Virginia Herold, executive officer of the California State Board of Pharmacy, has repeatedly stated that the 2015-to-2017 deadlines are firm and that there will be no further extensions. Greg Cathcart, CEO for Excellis (an information technology consulting firm), believes that further procrastination toward developing a serialization strategy is placing your company at greater risk, noting that “Vendors which develop the serialization software and manufacture serialization equipment, as well as consultants with serialization implementation expertise, will be maxed out and in short supply the closer we get to 2015.” M. (Ken) Kengatharan, a serial biotech entrepreneur and an experienced pharmaceutical executive who is currently a board member at Armetheon, Inc. (a California-based pharmaceutical company developing an anticoagulant drug currently in Phase 3) and also the president & CSO of Altheos, Inc., another California-based pharmaceutical company, sees this as an opportunity for companies in terms of a demonstrating competitive edge. In the late 1990s, one of Kengatharan’s previous companies was developing an e-commerce system that was partly meant to deal with parallel as well as illegal drug import issues in Europe. “When I select a CMO, cost is not necessarily a key element of the decision making,” he states. “I am looking for proactive companies, those I like to refer to as being future-proof, with people who view serialization not as a regulation requirement to be met but as an opportunity to provide added value and knowledge to their customers. These are the type of people I want to work with because they really understand the industry.” Cathcart believes the law will result in manufacturers streamlining their contract packaging partners, with some companies consolidating their partner portfolios to only those companies that are serialization-ready and eliminating sourcing to some of the mom-and-pop operations. Rodgers doesn’t believe it to make much sense for a global manufacturer to retain multiple contract organizations just because each is capable of fulfilling the requirements of certain parts of the world. “The complexity and diversity of these regulations,” he concedes, “may soon result in larger manufacturers deciding to outsource even more of their packaging and distribution components.” Though all three differ as to the eventual end result of serialization’s impact on industry, all concur that global serialization initiatives and supply chain member serialization readiness will impact the CMO selection process. So whether you are developing your own corporate serialization initiative or selecting an outsourcing partner, here are some steps to either consider implementing or observe being implemented by current and/or potential strategic partners.

Steps To Serialization
The first step in implementing a serialization initiative —  if you haven’t already begun the process —  is the recognition that you have a problem. Kengatharan advises you to gain a thorough understanding of the problem by getting involved with the organizations at the forefront of setting up and implementing solutions.

The second step is to begin creating a dedicated team focused on developing and implementing a solution with pharmaceutical manufacturing, supply chain, logistics, IT, and legal experience. Given the size and scope that a serialization initiative can take, companies should seek a serialization team leader who ideally has experience in pharmaceutical manufacturing and supply chain management and, most importantly, has been involved at a very high level in the process of implementing and communicating a structured change management program (i.e. transitioning individuals, teams, and organizations from a current state to a desired state). This team will be responsible for identifying key stakeholders, coordinating stakeholder outreach initiatives, and developing plans and tools to strengthen alignment between all groups involved in the serialization program. If you are a small company with limited resources, consider retaining the services of consultants with the experiences described above. “In addition, a senior management member should be actively involved and part of driving the process,” states Kengatharan. This type of thinking is not new. When e-commerce was considered a major avenue for businesses, several large companies had a CTO on their board if not on their executive teams. “Where we see people struggling,” says Cathcart, “is when senior management doesn’t give them the financial and people resources to be successful.” Cathcart sees the placement of a senior-level manager on the team as a mission-critical component to getting buy-in and support throughout the organization.

Step three to beginning the serialization process involves conducting a self-assessment. Cathcart believes this should involve the following. First, what products do you have presently? Second, what products do you anticipate having five years from now? Third, where are these products being, or anticipated to be, manufactured and packaged? Fourth, in what markets or countries are these products going to be sold? Fifth, how many different lines are being used to manufacture? Finally, how many regulatory bodies are involved? When gathering this information, it is not only important to note what you have, but in the case of assessing packaging lines, be sure to note what important equipment is lacking and necessary to be compliant.

The fourth step is to build a playbook based on all of the above gathered information outlining your serialization strategy. The playbook should prioritize the order in which manufacturing lines should be serialized. For example, if you have a product you anticipate selling in Brazil, that product should be the first priority since Brazil has a serialization law already in effect. According to Rodgers, “You will need a lot more time than you might initially think when it comes to fully realizing the successful implementation of a serialization program.” How much time varies on the number of packaging lines a company owns, how much automation already exists in the operation, and how much downtime they can tolerate to endure a conversion. “Manufacturers are often caught off-guard by the fact that the California law isn’t just a serialization law,” states Rodgers. “It is a pedigree law that includes unit-level serialization, but you will find that neither you nor your downstream trading partners can fulfill the law unless you can make use of inference — that is, you need to be able to infer the unit serial numbers contained inside of a case by reading only the case serial number.” Rodgers affirms that inference only works if you have a six-sigma casepacking automation system. “The point is, once you start looking at what needs to be done so you will be compliant at the deadline, you will very likely realize that you should have started much earlier,” he concludes.

The Benefits Of A Proactive Approach To Serialization
The experts interviewed for this article concede that many CMOs are working on very thin margins, and the cost of implementing serialization programs that meet the California requirement may seem cost-prohibitive. However, not doing so can result in being “penny wise and pound foolish.” Rodgers reminds those involved that it is the manufacturer, distributor, and pharmacies that are responsible for compliance. Further, it will be these organizations at risk of losing business and being fined should they fail to meet the serialization requirement. According to Cathcart, a general rule of thumb to consider is by meeting the California standard, your company will meet every other serialization standard, as it presently represents the most rigorous standard. In addition to the benefits of avoiding fines, preventing the loss of business, and meeting the most rigorous serialization standard in order to facilitate future global expansion, Kengatharan sees additional benefits. First, he advises companies to consider the volume of data which would be produced by the implementation of such a program and what business opportunities having access to such data could present. He believes if companies are implementing serialization just to meet a regulatory standard, then they are missing a bigger opportunity on which to capitalize. Finally, companies can strategically partner to meet the serialization initiative resulting in long-term strategic partnerships. “Once you’ve created this kind of tight relationship, switching becomes very difficult,” he states. A proactive approach to serialization today will provide companies with strategic advantages which will serve as the foundational building blocks for the strategic partnerships of tomorrow — partnerships which may last a very long time.

The Delay Game
For pharmaceutical manufacturers holding out hope that California’s ePedigree law will be postponed, Virginia Herold, executive officer of the California State Board of Pharmacy, has stated that the 2015-to-2017 deadlines are firm and that there will be no further extensions. The California State Board of Pharmacy initially stepped into this area of regulation out of perceived need, in the absence of federal standards and in response to acts of counterfeiting and other threats to security, beginning the process of developing an infrastructure back in 2003. And yet, the delay game continues.

The most recent attack seeking to derail the implementation of California’s ePedigree law (under review at this writing and anticipating a decision before the end of June 2012) was put forward by the Pharmaceutical Distribution Security Alliance, a consortium organized specifically to reach consensus on end-to-end track-and-trace rules, pedigree, and serialization. Their proposal, the Pharmaceutical Traceability Enhancement Code (RxTEC) Act,  also referred to as the “Securing Pharmaceutical Distribution Integrity Act of 2012,” is one more piece of legislation attempting to be attached to the reauthorization of the Prescription Drug User Fee Act (PDUFA) — essential to FDA funding in the new fiscal year, which begins Oct. 1, 2012. Henry Waxman (D-CA), ranking member of the House Energy and Commerce Committee, stated, “The User Fee add-ons are a long line,” warning that as add-ons mount, complexity of negotiation deepens. So why the last minute move? Why the delay of course?

The proposal, which appears to be backed by PhRMA, was filed by the Washington-based law firm Faegre Baker Daniels. The hope is that by going to Congress with one plan, they can gain acceptance of a national standard, which would supersede the California law. The earliest date that the RxTEC Act could take effect is sometime in 2020. Since it is proposed to begin implementation five years later than the California ePedigree law, you might expect it to be more complex and more thorough. In an eight-page letter  to Waxman, dated May 9, 2012, California State Board of Pharmacy President Stanley Weisser outlines the inadequacies of the RxTEC proposal. “While we agree in principle that a uniform national standard would be ideal, we would like to see that standard a much closer approximation of the California model than is reflected in the RxTEC proposal. We would encourage something closer to the Bilbray-Matheson model of H.R. 3026.”

When I first became aware of California’s position, I felt there was a need for a national standard. Further, I wondered why a state should be involved at all. Now that I have gained more information, I understand the benefits of California taking a leadership role. Had California done nothing, nothing would have been done. After having read Weisser’s letter, I would argue that no national standard would be better than a substandard national standard. In typical pharma fashion, instead of seeing the opportunity to be gained by implementing a “Gold Standard” serialization program, which would result in the collection of tremendous amounts of data and the possibility of a wide variety of business opportunities, industry fell back on its own gold standard — the delay game.

What No One Seems To Be Talking About Regarding Traceability
In February, Genentech, the maker of the best-selling cancer drug Avastin, issued a warning to doctors and patients, noting that the counterfeit vials of the distributed product did not contain the key ingredient used to treat cancers of the colon, lung, kidney, and brain. Charlotte Arnold, a spokeswoman for Genentech, said the counterfeit drug had been distributed to healthcare facilities in the United States, though it is unclear how many products are in circulation or where they may be concentrated. In addition, Arnold said the company was alerted to the problem by foreign health regulators. Unfortunately, this is not the first time Avastin has been the target of counterfeit. For example, in 2010, patients in China were given a drug thought to be Avastin which turned out to be saline contaminated with bacteria endotoxin. Another example of a deliberate drug contamination occurred in 2008 when contaminated heparin was connected with dozens of deaths and hundreds of allergic reactions across the United States. The FDA investigation concluded that the drug had been intentionally contaminated. Thirty years ago, Johnson & Johnson (NYSE: JNJ) experienced deliberate contamination of its market-leading product Tylenol. This event resulted in the death of seven people, resulted in the creation of industrywide tamper-resistant packaging, and cost J&J more than $100 million. Here is why all of these events are significant.

Tamper-resistant packaging has created a level of trust among U.S. consumers. Patients trust that the medication being injected by a healthcare provider is safe. Patients trust the person giving the injection. In a Gallup Poll, 84% of Americans rated nurses’ honesty and ethics as “very high” or “high.” That being said, when was the last time you asked the nurse (the person most likely to give an injection) if they checked the tamper-resistant packaging and if anything seemed amiss. Recent counterfeits of Avastin demonstrate the ability of counterfeiters to closely copy company drug labeling and successfully circumvent the current drug distribution system. For those people intent on launching a bioterrorist event, the best way to do so is to either tamper with a product prior to its being packaged or create a copy that looks just like the product and place it in the hands of trusted healthcare providers for administration. Bioterrorism remains a distinct possibility, especially without a program that involves the ability to trace medications back to their manufacture to ensure the contents have not been adulterated. So what is being done?

The Risk Of Legislation Procrastination
Recent legislation introduced in the House of Representatives would create a mandatory bar code system to monitor the authenticity of all prescription drugs moving through the U.S. supply chain. The legislation is known as the Pharmaceutical Traceability Enhancement Code (RxTEC) Act and was introduced earlier this year. But the importance of traceability is nothing new. In July 2003, U.S. FDA commissioner Mark McClellan established the counterfeit drug task force. In a report issued in 2004, the task force concluded that the adoption and common use of reliable track-and-trace technology based on radio-frequency identification (RFID) tagging of products was feasible for use by 2007, and the report recommended universal pedigree requirements to document all drug movements. And yet, eight years later, a federally mandated traceability program has yet to go into effect. The state of California’s board of pharmacy began the process of taking action nearly 10 years ago, laying out an ePedigree law scheduled to begin going into effect in 2015. Its intent — to secure the drug distribution system from the threat posed by counterfeit, misbranded, adulterated, or diverted drugs. The problem with RxTEC is that it is not as robust as the California ePedigree law and, if passed, would supersede the California law. Finally, it won’t go into effect until 2020. Traceability and serialization are not easy issues. But procrastination on legislation which leads to delayed implementation is simply providing those intent on causing harm a greater opportunity to do so.