An authorized distributor of IVIG and other biopharmaceuticals makes its case for higher security in the pharmaceutical supply chain

The often-postponed federal drug pedigree requirement, enacted in the Prescription Drug Marketing Act (PDMA) [1], was to have finally been implemented December 2006. Instead, it has languished since then, awaiting resolution of a legal challenge to its constitutionality. In the meantime, states’ drug pedigree efforts are reflected in various website maps that present lots of complementary colors – and information that clashes so badly it could give a fashion designer apoplexy. [2,3] Within the varying efforts to secure the U.S. pharmaceutical supply channel, “who’s passed what and what’s effective when” is more circular than the classic Abbott and Costello routine, “Who’s On First.”

Worse, this has been the status quo for many years. Despite FDA’s comprehensive 2004 report, “Combating Counterfeit Drugs” and its updates. [4] Despite the 2005 publication of the frightening exposé by Katherine Eban, Dangerous Doses: A True Story of Cops, Counterfeiters and the Contamination of America’s Drug Supply. [5] Despite Florida’s once passionate but ultimately tepid legislative effort to lead the nation in securing the pharmaceutical supply channel. Despite countless U.S. media reports of drug diversion, mishandling and counterfeiting. Despite the mournful and outraged pleas of families harmed by a channel lacking integrity. Despite all this, the U.S. pharmaceutical supply channel remains unsecured. This failure begs the question “How can we fix it?” and the answers vary, depending on who is asked.

FFF Enterprises, a specialty pharmaceuticals distributor, believes the solution is simple. “Don’t do it – secondary distribution that is – just don’t do it!” said Patrick M. Schmidt, FFF’s president and CEO. “That’s not a popular position, and some people in the industry think if you consolidate the channel too much, in an effort to secure it, there are U.S. sites of care we won’t be able to reach. I don’t believe that. Just ask FedEx or UPS or DHL.”

FFF is a manufacturer authorized distributor of record (ADR) for all U.S.-licensed plasma products and a leading distributor of intravenous immune globulin (IVIG or IGIV) and influenza vaccine – both recognized targets of diversion, unethical pricing and counterfeiting. Despite FFF’s ADR status, the company has been voluntarily providing electronic pedigrees for its customers since 2004. Yet Schmidt is not convinced pedigrees are the solution.
“I’m not sure the supply channel can ever be completely fixed, although there has been a lot of progress. The channel consolidation we’ve seen in the last couple years is evidence of that,” Schmidt says. “But the pedigree requirement stops short as long as there are exemptions. ADRs and manufacturers should not be exempt. And now people know enough about pedigrees to be dangerous. Many providers know to ask for them but don’t have the wherewithal to verify the pedigree information, and pedigrees can be counterfeited. We’ve seen pedigrees with transactions hand-written in.”

                          PATRICK SCHMIDT, FFF ENTERPRISES

In fact, FFF was recently provided copies of pedigrees obtained by the state of Georgia Drugs and Narcotics Agency in the course of an audit of a secondary distributor. The pedigrees, filled in by hand, documented several instances of IVIG transactions that began with FFF’s purchase of the product from the manufacturer and sale to an infusion clinic. The infusion clinic sold the product to a physician who has a wholesale license. The physician didn’t administer the IVIG to patients, but, instead, sold it under his wholesale license to a secondary distributor, which sold the product to another secondary distributor.

All told, the various secondary channel transactions reflected in the documents from Georgia resulted in price increases ranging from about 50 to 100%.

“We cut off the infusion clinic immediately, as did the manufacturer,” says Chris Ground, FFF’s SVP of national accounts. “The clinic’s sales of product obtained from FFF violated its agreement with FFF, its agreement with its group purchasing organization (GPO) and the GPO’s agreement with the manufacturer. But the pedigree didn’t stop the bad behavior; it just documented it. What the pedigree did not document was whether the IVIG was handled, stored and shipped properly; whether the temperature was maintained; whether the product’s integrity was maintained. That IVIG was ultimately infused into critically ill patients, at an exorbitant price. Is that the IVIG you would want for yourself or for a loved one? To an informed reader, that pedigree tells a dangerous story; it doesn’t do anything to instill confidence in the product.”

If pedigrees aren’t the fix, despite significant hope and dollars invested in them, the quest for channel integrity could become a windmill tilt. But Schmidt sees better defined business practices and a more astute buyer as the answer.

“Ultimately, the question is, do secondary distributors add value to the channel? We don’t believe so,” Schmidt says. “The secondary channel exists to exist, to make money and to prey for shortages – and I mean that to be spelled p-r-e-y.

“FFF’s distribution practices are a sharp contrast,” Schmidt continues. “We purchase only from the manufacturer and ship only to the healthcare provider. That’s the only true solution. That means no transactions between distributors, no manufacturer sales to unauthorized distributors, no secondary channel for providers to sell into. If all manufacturers, all ADRs and all healthcare providers accept this practice as the industry standard, the channel will be as secure as it possibly can be, and we won’t need regulation. Short of that, it’s the government’s responsibility to protect its people.”

This point also came up in the recent RxUSA litigation. In a report to U.S. District Court Judge Joanna Seybert, presiding over the RxUSA v. HHS case, there is a seemingly quiet little statement that is actually screamingly simple: “[The Plaintiffs] purchase pharmaceutical products for resale almost exclusively from authorized distributors and not directly from manufacturers – primarily because manufacturers typically refuse to sell product directly to the Plaintiffs.” [6] Manufacturers expect their authorized distributors to prevent diversions, not enable them.

Litigation challenge
Jayne Juvan, a healthcare law attorney with Benesch, Friedlander, Coplan & Aronoff, posts a health law blog [7] where she has tracked the legal challenge to the federal pedigree requirement. The case was filed against the U.S. Department of Health and Human Services (HHS) by a group of secondary distributors (those who are not ADRs), led by RxUSA Wholesalers Inc. The plaintiffs are opposed to the PDMA’s pedigree requirement exemption for ADRs.

“RxUSA has argued that the law is unconstitutional because it treats different classes of individuals differently without having a rational basis for doing that,” Juvan says, but goes on to explain that “The Constitution allows us to do that; if it doesn’t involve race or a fundamental right such as voting, the courts generally follow Congress.”

Juvan expresses no expectation that RxUSA will prevail, but indicates the case could take years, holding up the federal pedigree requirement. Yet she echoes FFF’s doubt that pedigrees can actually secure the supply channel. “Supposedly, the average consumer stands to benefit from a more tightly regulated supply chain,” Juvan says. “Whether that’s actually the case is another question. Do the regulations make it less likely for counterfeits to make their way into the supply chain? There are arguments both ways.”

And the argument has shifted to the states, a trend Juvan suggests could actually hinder channel integrity. “The federal government should say that states cannot legislate pedigree requirements,” she says. “Multiple standards could actually increase the likelihood that counterfeits will be introduced and could impede distributors’ ability to conduct business.”
While pedigrees remain the talk of the town, some industry watchers assume the U.S. supply will always have a percentage of counterfeit drugs. “The key,” Juvan says, “is to make sure our percentages don’t rise.”

Writing laws
In 2005, Congressman Steve Israel (NY 2nd District) introduced HR 2345, commonly known as Tim Fagan’s Law [8], after hearing about then-16-year-old Fagan, an organ transplant patient, being infused with a counterfeit drug. The boy’s medicine went through 11 transactions between the manufacturer and the Fagans’ refrigerator, including a deal at a strip club in Florida. Among other channel safeguards, HR 2345 would require drug pedigrees – paper or electronic – of all distributors, mandate manufacturer reporting of counterfeiting within two days, give the FDA drug recall authority and increase criminal penalties for counterfeiting.

The bill didn’t progress in the Republican-controlled Congress, but with the transition to a Democratic majority, Israel’s office is now preparing to reintroduce the bill in a form “very similar” to its original. “If every member of Congress had a Tim Fagan in every district, this bill would have passed two years ago,” Israel explains. “I would argue that every member does have a Tim Fagan, but the nature of counterfeit medicine makes it almost impossible to recognize that. There’s no question that the economics of this issue have helped stall any progress on this bill, but even the industry has come to a fairly recent recognition that the threat of counterfeit medicines and a growing gray market are far greater challenges to their profits than paper pedigrees and increased FDA enforcement. Counterfeit medicine is now one of the fastest growing criminal enterprises in the U.S. It’s easy to do, it’s hard to get caught and it’s highly profitable.”

Although Israel’s bill would eliminate the ADR pedigree exemption, essentially resolving the RxUSA case, it would not put an end to the types of transactions that inspired the bill. “I don’t want to wipe out the secondary market,” Israel concludes. “I just want the secondary market to thrive with a distribution system that has integrity. Sending Tim Fagan’s Epogen to the strip club tells me there’s a lack of integrity in secondary channels.”

Concurrent with Israel’s pedigree effort, the House Energy and Commerce Health Subcommittee recently marked up the pedigree requirement language in a Senate-passed omnibus reauthorization bill, S 1082 [9], to exclude the pedigree exemption for both manufacturers and ADRs. The highlighted language in the following bill excerpt was excised by the subcommittee.

(e)(1)(A) Each person who is engaged in the wholesale distribution of a drug subject to subsection (b) and who is not the manufacturer or an authorized distributor of record of such drug shall, before each wholesale distribution of such drug (including each distribution to an authorized distributor of record or to a retail pharmacy), provide to the person who receives the drug a statement (in such form and containing such information as the Secretary may require) identifying each prior sale, purchase, or trade of such drug (including the date of the transaction and the names and addresses of all parties to the transaction).

If this change survives, it too would resolve the ADR exemption debate, but it would not go into effect until January 1, 2010.

The HHS Office of the Assistant Secretary for Planning and Evaluation (ASPE) recently released a report on intravenous immune globulin (IGIV). [10] The report highlights some key characteristics of the secondary distribution channel:

“The IGIV marketplace has struggled with channel integrity and includes a significant secondary market outside of the authorized distribution channels. The secondary market is characterized by fluctuating prices and product availability. . . .

“Prevailing IGIV prices in the secondary market are substantially higher than those in the authorized channel. . . .

“In the last few years, in order to increase the integrity of the supply chain, each IGIV manufacturer has significantly reduced the number of its authorized distributors in the United States. Previously, manufacturers used large numbers of distributors, some of which were involved in reselling IGIV at a profit to other distributors (also known as the secondary market). . . .

“Most manufacturers interviewed reported having a policy to eliminate any business relationships with an entity that supplies the secondary market. . . . While IGIV manufacturers contend that they only sell to authorized distributors and providers, input from other sources contradicts this assertion. One GPO interviewed for the study reported that some manufacturers do indeed sell to secondary distributors at prices higher than that for allocated IGIV. Further, a secondary distributor interviewed for the study also indicated buying IGIV they sell directly from an IGIV manufacturer.”

Uncontrolled supply chains
Flemming Nielsen, GM of Octapharma USA (Centreville, VA), a global manufacturer of IVIG, confirmed some of the report’s findings. Octapharma has reduced the number of its ADRs to five since entering the U.S. market in 2004, in an effort to secure its piece of the channel.
“Our direct distribution agreements indicate that our products are not for resale,” Nielsen explains. “What usually happens is someone has acquired Octagam [Octapharma’s branded product], and they call and want verification of the pedigree. Then we look into it and we get documentation that the product had been resold two, three, four times. We see that we sold it to the distributor, the distributor has sold it to the provider and then it has been sold out the back door. We will then tell the distributor not to sell to that provider anymore. We want to see that it goes from Octapharma to the distributor to the healthcare provider to the patient.”

Octapharma’s approach is labor intensive, which may not be feasible for Big Pharma. Hence, a solution such as California’s, which, although not stated in the law, has been interpreted by the state’s Board of Pharmacy as requiring unit-level serialization (uniquely identifying each bottle or vial of medicine), a requirement few manufacturers are currently prepared to meet.
Nielsen’s measured response to this prospect was revealing: “We have discussed the California requirements with our QA and manufacturing people. We have considered a technical solution, but we haven’t considered a logistical solution.”

Nonetheless, Nielsen does see a channel integrity solution, one that isn’t regulated. “We sincerely believe that if you want to secure the channel there has to be a cooperative approach. … As soon as product enters the channel, there has to be cooperation between the manufacturer, the distributor and the provider. We should be the ones to work this out together because we all want safe product and a secure channel for the patient.”
Martha Harbin was an organizer with Safe Drugs Now, a now-defunct consumer group formed to maintain the original requirements in Florida’s pedigree law. She believes she saw the government bow to the influences of business when the big three pharmaceutical wholesalers successfully lobbied the Florida legislature to insert an exemption from pedigree requirements for ADRs in Florida’s law.

“We found some solace from watching the manufacturers’ press releases. They started announcing that they were voluntarily implementing some of the things that would have been required by Florida’s law. Like Pfizer announcing they wouldn’t sell to secondary distributors any more.”

Harbin has come to believe the solution cannot be found at the state level. “If we continue to rely on the states to be the gatekeepers, there will be bad things happening. It’s going to take more for the public to become more involved and demand political change. It will take more media. The occasional instance of counterfeit drugs is not enough. I hope it’s not going to take something like the Tylenol situation in the 80s, but that was dramatic enough that it really caused a widespread awareness of the problem.”

Harbin advocates for safety first: “Manufacturers and distributors need to put the safety of the consumer above everything else. They are in a unique position of public trust and that should motivate everything they do. In the end, that’s good business.”

Good or bad, how the business of distributing pharmaceuticals will be regulated is unclear. National pedigree requirements remain stalled in the miasma of a court challenge. California’s looming, more stringent requirements have not resulted in an enthusiastic rush to comply with their intent – in fact, some industry meetings addressing the law have been, at times, focused on forestalling the requirements if not outright avoiding them. Other states continue to dip a legislative toe or two in the muddied waters of pharmaceutical supply regulation. And the channel remains unsecured.

Meanwhile, healthcare consumers remain in ignorant risk – and may continue so, unless Harbin’s worst fears come true and consumers are painfully enlightened by a cataclysm of counterfeits. Woe to industry and government alike if losing consumer trust is what it takes to secure the U.S. pharmaceutical supply channel. Better would be an industry initiative that openly acknowledges all the risks and adjusts standard practices to mitigate the risks openly, effectively – and voluntarily. FFF’s model could be the most effective and least painful solution: from the manufacturer to the ADR to the healthcare provider. As Israel commented, “It’s in the best interest of industry that American consumers have confidence in their products.” PC

Written with research assistance from Zachary Pugh of FFF Enterprises.



REFERENCES

1. U.S. Prescription Drug Marketing Act of 1987: http://www.fda.gov/cder/regulatory/PDMA/
2. FFF Pedigree Map: http://www.fffenterprises.
com/Safety/PedigreeMap/Index.aspx; HDMA Distributor Licensing and Pedigree Requirements by State: http://www.healthcaredistribution.org/
gov_affairs/.state/state_legis-static.asp
3. Pharmaceutical Commerce, “Red State, Blue state – and Green, Yellow and Orange, Too” December 22, 2006, http://www.pharmaceuticalcommerce.com/
frontEnd/main.php?idSeccion=407
4. “Combating Counterfeit Drugs” 2004, “FDA Counterfeit Drug Task Force Report” 2006, http://www.fda.gov/counterfeit/
5. “Dangerous Doses” by Katherine Eban, Pub. 2005; Reprint edition 2006, www.dangerousdoses.com
6. United States District Court Eastern District of New York, RxUSA Wholesale Inc v. Department of Health and Human Services, U.S. Food and Drug Administration, Report and Recommendation by A. Kathleen Tomlinson, Magistrate Judge
7. www.JuvansHealthLawUpdate.com
8. What does Tim Fagan’s Law do? http://www.
house.gov/israel/issues/counterfeitdrugs.htm
9. S. 1082 Food and Drug Administration Revitalization Act http://www.govtrack.us/
congress/bill.xpd?bill=s110-1082
10. U.S. Department of Health and Human Services, Office of the Assistant Secretary of Planning and Evaluation (ASPE), Analysis of Supply, Distribution, Demand and Access Issues Associated with Immune Globulin Intravenous (IGIV), February 2007: http://aspe.hhs.gov/sp/reports/2007
/IGIV/index.htm


ABOUT THE AUTHOR
Kit-Bacon Gressitt is VP of Marketing and Communications at FFF Enterprises (41093 County Center Dr., Temecula, CA 92591, 800 843 7477, fffenterprises.com). She has more than 25 years’ experience in leading marketing and communications operations, including creating and management public affairs, advertising, new product launches and political campaigns.