George Miller

	Here’s what executives need to know about marketing regulations: compliance is core to the very culture of your company. Underestimate its importance at your peril. The training of executives on marketing compliance is an art form all its own. The minutiae implied in the word “regulations” would seem fundamentally to exclude the strategy-minded highest organizational levels. But this is one art program they need to attend.

New laws and legislation in process, as well as industry codes and practices, are placing increasing education requirements on sales reps just to get in the door to see prescribers. Beyond that fundamental is the increasing scrutiny of regulators on both product labels and post-approval adverse events that can lead to label revisions. These and other issues have forced compliance out of the realm of the tactical and into the strategic. 

It may sound like compliance has become a quagmire, but not necessarily. “We say, ‘use it as an excuse to be great,’” says Brian Lee, founder and CEO at Custom Learning Systems (Calgary, AB) a provider of on-site training, coaching, and service education in the healthcare industry. “It’s not a hard argument to swallow. Our clients need to determine how to meet the expectations of government while getting closer to their customers.” 

Michelle O’Connor, senior VP for learning strategy and innovation at CMR Institute (Roanoke, VA), sees it this way: “In any regulated industry it’s easier to be reactive rather than proactive. The challenge is to take a long-range and strategic view of regulatory compliance.” CMRI is an independent, not-for-profit organization offering unbranded education to pharmaceutical, medical device, and biotech professionals. 

	Compliance is “a reflection of an organization’s culture,” she says. The obligation to comply and behave ethically has to be driven from the top down. “Executives have to set the tone.” 

And Celeste Mosby, VP for life sciences at Wilson Learning Worldwide (Edina, MN), says that knowing regulatory requirements helps executives develop integrated marketing materials. “Some companies are traditionally very siloed in structure, and decisions are made in a siloed way. As we work with organizations now, we put a big emphasis on collaboration and driving a seamless approach to strategic development,” she says. When they do so, the end product is much more in line with regulations. 

Whether siloed or collaborative, compliance is having a major effect on the way pharmaceutical business gets done. And interpretation of requirements can sometimes force that effect into the “difficult” category, according to researchers. 

Take the recently revised codes of conduct issued by the Pharmaceutical Research and Manufacturers Assn. (Washington). The codes, issued late last year, revise principles implemented in 2002. Many companies began training on it early this year, beginning its real test, says Steve Mack, project director at PharmaForce International (Reading, PA), a research organization focused on pharmaceutical sales and marketing benchmarking. Executives sometimes need help in interpreting regulations and developing operational procedures that meet them. 

	Mack provides one example of a revised code that actually could not be put into practice by the interpreting company: Bringing a snack item for the healthcare provider’s office is still permissible, he explains. But by the code-complying company’s interpretation, the gesture of a drug rep bringing a bag of M&Ms to an office became quite complicated. The rep would have to stay to see the M&Ms consumed by office staff in a meeting, to ensure that the candy was not taken by a doctor and eaten at home. 

Another perceived difficulty: when reps bring in lunch to a healthcare provider office, they would have to monitor attendee job function. If someone shows up to the lunch who is not part of the mainstream medical profession—a file clerk, for example&mdash;the sales rep would have to ask them to leave. “They believed they would have to police who attended the lunch, and saw it as impossible,” says Mack. 

Other drug makers have reached erroneous conclusions about changes to the code. When reps and management from one company learned that they were no longer able to book monthly lunches in healthcare provider offices, as they were accustomed to doing, they came to believe that providing one meal for, say, 50 office staff members would entitle them to follow-up appointments where they could present detail. “That’s going to lead to problems,” says Mack. 

The PharmaForce findings are presented in a report updated in June, Competitive Benchmarking of Leading Pharmaceutical Companies’ Strategies for Leveraging the Medical Liaison Function. The report details the efforts of 13 drug companies in complying with the revised PhRMA codes. PharmaForce researchers surveyed a mix of companies: large, mid-size and small; PhRMA members and nonmembers; adopters of the code and non-adopters. The report, which costs $19,000, contains profiles of the 13 companies. 

The revised code does offer some wiggle room for competitive thinking. Regarding speaker honoraria, Mack notes that the rates charged by doctors per lecture are comparable, $1500 to $2000 for a specialist speaker. Increasing the honoraria budget allows for more talks by more speakers. He has seen $30,000 budgets at the low end vs. $150,000 budgets at the high end. “That’s a pretty big variance,” he says, noting that some companies still have not yet established how much they will budget. 

	Like the PhRMA code, the SafeRx Act adopted in Washington, DC, in early 2008 regulates rep interactions with healthcare professionals. SafeRx will require “detailers,” according to an announcement, doing business in DC “to be licensed and held to a professional code of conduct. Those who violate these standards will be fined and could have their licenses revoked.” The bill also requires reps to have an appropriate educational background. In addition, it created an academic detailing program “to educate doctors on the latest developments in pharmaceutical research,” the announcement says. And it prohibits members of the DC medical advisory committees from receiving gifts from pharmaceutical companies. 

What’s significant about the SafeRx Act is not so much its directness in singling out the sales rep function, but the speed at which it is spreading. 

“States are jumping on board and adding to the requirements,” says Mosby of Wilson Learning. “Unique legislation is being introduced that’s going to impact marketing in a big way. Executives have to know how it will impact their strategy this year and into the future.” 

Industry training and education providers have seized the opportunity. Wilson Learning has submitted ten courses for the approval of the District of Columbia’s Board of Pharmacy to satisfy SafeRx continuing education requirements. CMRI boasts 42 courses and one certificate program that have been approved. 

“We are focused on education, not regulation,” says O’Connor of CMRI. In fact, she says the Institute is opposed to some of the regulations proposed by states. “We believe education is the answer. That’s the viewpoint we take with all of our clients.” CMRI also provides research of physicians, she says, “to get a deeper dive on what they hope to see from reps and the pharmaceutical industry in general.” 

	A key component of marketing compliance education is accountability. “You have to teach accountability and its execution,” says Lee of Custom Learning Systems. “The trickle-down effect—from C-level on down&mdash;is not effective. Our goal is to get them excited about accountability that works.” 

Real accountability, he maintains, needs to rest at the C level and the director level. Its teaching requires several steps in the Custom Learning Systems model. The first step involves getting senior management off site and “spending quality time with them. This is budget and time dependent, of course, but we usually do it for two days.” During this Leadership College, trainers work to make sure that all members of the senior team are equal drivers. 

The Leadership College is followed by getting buy-in at the director/manager level during a leadership briefing. Lee says that accountability workshops for all leaders are next, during which the CEO leads the discussion and spells out the main expectations for performance. Having CEOs lead this discussion is important, he says, because “it helps them understand the significance of their unspoken power. We get a higher level of ownership when everyone is involved in setting the bar.” 

The accountability workshop is followed by education, which Lee prefers to call “leadership development,” and it’s conducted as just-in-time training. Next is the launch of performance improvement teams. “You can’t hope that busy executives can do the implementation. Unless there is a structure in place when you do the training, forget it—93% of what is learned in the classroom is forgotten in 14 days.” 

	The final steps are coaching and progress reports. Coaching begins with an assessment of how the leaders are performing relative to stated goals. “Coaching is crucial,” says Lee, in part to keep the momentum going. “The ability to execute after the training is where they fall down.” 

He convenes a summit for leader presentation of progress reports before their peers. “We give them a chance to brag and fine-tune ideas; to talk about what happens next.” That usually involves trainers training other employees, extending the reach to the front lines.

	Like the case with the Custom Learning Systems model, accountability at the executive level is also germane in the efforts at CMRI. “Government takes a broader view of accountability when it comes to compliance. It’s not just the rep who’s targeted,” says O’Connor. 

“The obligation to comply and behave ethically applies to everyone in the industry,” she says, “and it has to be driven from the top down. Executives have to set the tone, especially to those who report to them. They serve as role models.” 

	In the courses offered by CMRI, accountability and obligation are strongly tied to ethics. In one course, “Pharmaceutical Ethics and Compliance,” the instructor devotes time to the reasons for ethical and regulatory compliance and the range of activities affected by them. In addition, the course outlines key U.S. laws related to ethical behavior in all aspects of the pharmaceutical industry (from research and development to sales and marketing) and guidelines developed by professional and industry groups to promote ethical and compliant behavior. 

“Being ethical and behaving ethically is more than acting lawfully,” says O’Connor. “Executives have to understand the principles that underlie the regulations, and then be proactive about them.” CMRI offers courses on business ethics as well as medical ethics. “When you understand the rationale for behaving ethically, it’s easier to understand why you have to comply. It’s essential to build knowledge around regulations but also how they are applied, not just at pharma companies, but at the FDA and with the public as well.”

	O’Connor says that executives react very well to the ethics element. “It helps them take a broader view. Instead of saying ‘This is being forced on me,’ they see how it can benefit them.” 

	Like Lee at Custom Learning Systems, O’Connor sees implementation as one of the big challenges in marketing regulation compliance. Another is working across functions. Marketing compliance requires cross-functional collaboration, she says. “It’s to their benefit if they don’t take a siloed view.” 

CMRI works with all sizes of pharmaceutical company: the top 10, mid-size and small companies and biopharma. Although it varies from company to company, she says that in big pharma “the trend over the last couple of years is toward more of a non-siloed approach. They are taking the strategic view.” 

One driver is the aforementioned SafeRx Act, and the pending legislation at the state level. The drug giants are showing “recognition that we all need to work together,” says O’Connor. “There needs to be a cooperative, concerted effort.” 

Mosby of Wilson Learning concurs. Good results have come from times when marketing, sales and training have worked collaboratively with medical affairs, she says. “I’ve seen some best practices come out of that partnership. We encourage, yet executives drive, breaking down the silos. With the current regulatory environment it makes good sense to do this partnering up front rather than doing many reviews later.” 

	Mosby also finds that accountability is key to marketing regulation compliance. Along with teaching executives how to think strategically, it’s a hot topic, especially for marketing executives. “We help them build strategic alignment and get buy-in on strategy,” she says. “They have to think through processes to support goals.” 

Mosby also says that most of the Wilson Learning executive training is applications based, using a simulated environment. Participants are asked to tackle certain challenges. “There’s dissemination of content, then they get right into applications,” she says.

	Company size can make a big difference in training implementation. “A midsize company has fewer layers of management, so decision-making power is quicker and more fine tuned. In big pharma, decision-making is more complex; you might find standard operating procedures for marketing; a lot more process,” says Mosby. 

Building skills that help executives create shared vision and strategy is her goal. She wants to help executives lead organizational change, inspiring employees across functions. “Leaders must create the environment for inspiration,” she says. “They can’t force it.” PC 

Articles

Conventional training of sales forces is being complemented by executive-level training for corporate compliance

Training Executives for Marketing Compliance

	Despite historic risk during the metamorphosis from glamorous high-tech startup to pillar-of-the-community manufacturer-employer, biopharmaceutical companies remain near the top of the list of industries that US states see as key to their economic future. Biotechs looking for a place to throw down roots are very much in demand these days as states seek to transition from economies underpinned by fading or troubled industries like tobacco, steel, and automobiles.

(Left to right) Chancellor Marty Meehan of the UMass Lowell; Jean-Paul Mangeolle, Millipore Corp., and Prof. Carl Lawton, UMass Lowell 

“It’s perhaps the most common claim after renewable energy,” says Patrick Kelly, VP of state affairs at the Biotechnology Industry Organization (BIO) in Washington, of states’ assertions of their suitability for growing biotech businesses. “Governors have been talking for the last 10 years about biotech becoming a part of state strategic plans. Just about every state now has some strategic plan referencing life sciences as a rationale for creating high-wage, high-skill jobs to help them transition out of older industries into the bio-economy.” Since the talk started, he says, a lot of action has taken place, including the start of billion-dollar-plus initiatives in Massachusetts and Florida. 

 survey of economic-development efforts this year is that local and state-based groups are linking up to strengthen their regional offerings. Southeast BIO, for example will be using this year’s BIO meeting in Atlanta to showcase its unified front for biopharma. Southeast BIO brings together groups in Florida, Georgia, Alabama, North Carolina, South Carolina, Tennessee and Virginia. Organizations in and around Philadelphia are promoting a biopharma cluster that crosses the state lines of New Jersey, Pennsylvania and Delaware. And California now has the California Life Sciences Alliance, uniting local efforts in the San Diego area, Los Angeles, and San Francisco. 

When the objective is biopharmaceutical manufacturing, the deal sealers are not always the points making headlines in pitches by would-be hosts. In fact, financial incentives and manufacturing infrastructure (water, electrical, and wastewater facilities) aside, the key characteristics that make a location attractive to biomanufacturing companies are often a skilled workforce and proximity to manufacturing support, especially contract manufacturing and supply chain services. Such characteristics are more often the result of an entrenched manufacturing base and a community-college-level attempt to serve it, rather than a commercial garden cultivated by Ivy League innovation. 

North Carolina knows this. After a half century refining the art of wooing high-tech industries to a region known for furniture making and tobacco growing, the state remains an object lesson in how to attract, land, and maintain a biomanufacturing presence. The Research Triangle Park mecca plans to maintain its status as an economic driver for the state by capitalizing on the growth of drug development and manufacturing outsourcing. 

Contract research organizations, development organizations, and manufacturing organizations “are all strong in RTP and will continue to grow rapidly,” according to Charles Hamner, DVM, PhD, chairman of the board at the RTP-based Hamner Institutes for Health Sciences. Hamner is credited with playing a key role in transforming North Carolina into a biotech state and is considered a pioneer in state-sponsored biotech initiatives. North Carolina’s biotechnology center, community-college technician training, support from state political leaders, and Council for Entrepreneurial Development are some of the resources in place to support growth. 

	North Carolina business development officials have done a good job of quantifying their accomplishments, says Kelly of BIO. “They got tired of the announcements coming out of other states,” he says. “They released a report saying that they’ve already spent $1 billion on biotech initiatives and here’s what’s been accomplished and here’s where we’re going.”

The state is a member of Southeast BIO, a 1200-company nonprofit dedicated to fostering the growth of the life sciences industry in the seven-state region from Virginia to Florida. The organization has launched Southeast BIOtech Connect (available at www.sebio.org), an interactive database that outlines member companies and regional characteristics, for use by attendees to the upcoming Biotechnology Industry Organization (BIO) convention to schedule facility in conjunction with their mid-May visit to Atlanta. 

Kelly adds that a long view is important in the bio-pharma industry. “Manufacturing is the culmination,” he says. “Given R&D and FDA-approval timelines, it takes 10 to 15 years and a billion dollars invested, once you’ve got your intellectual property.” Twenty years is therefore a reasonable timeframe to gauge the success of state efforts to attract biopharma business. Announcements made over the past few years—even those for billion-dollar initiatives&mdash;represent formative efforts, subject to prevailing economies. Many of the states that have placed such bets over the past few years are today in much different financial condition than they were when their initiatives were announced. Now they face the struggle of sustaining their commitment. 

	Kelly notes that currently every state is in a bind due to budget constraints. “Time will tell who will emerge better off or worse off,” he says. Although they’re not top of mind in many biotech circles, Texas, North Dakota, and West Virginia currently have state budget surpluses and are therefore positioned to follow through on initiatives. Texas, for example, “is in the black and has a bond measure for $300 million per year for 10 years to do cancer research,” says Kelly. 

He also notes the emergence of bicameral legislative caucuses dedicated to life sciences, charting a path forward in state legislatures. Fifteen states have put such caucuses in place, he says. 

Another state to watch is Arizona, whose bioscience sector has grown into a major industry in the past five years, according to a study released in April by the Battelle Technology Partnership Practice (Bethesda, MD). Arizona’s nonhospital bioscience sector accounted for $3.6 billion in revenue and more than 13,500 jobs in 2007, the latest year statistics are available. 

From 2002, when the state began attracting biotech, to 2007, economic activity in the sector increased 57%, jobs grew 20%, and tax revenues jumped 35%, according to the Battelle report. “This rate of growth is difficult to find elsewhere in the nation,” said Walter Plosila, the lead Battelle consultant who has been tracking the state’s bioscience sector, in a local press report. Plosila also authored a 10-year roadmap commissioned by the Phoenix-based Flinn Foundation in 2002 that outlines strategies for the state to take to become a bioscience hub. 

“Some have described Arizona’s bioscience base as fledgling, but these numbers are very real and significant—and they’re growing rapidly,” says Marty Shultz, chair of the steering committee that oversees the implementation of the roadmap, in an announcement. 

	Also executing a roadmap is Michigan, in which 112 biotech companies have formed since 2000. The Pharmaceutical Research and Manufacturers of America (PhRMA) industry association chose the Wolverine state last fall as the location to unveil its report, Medicines in Development: Biotechnology, a tally of drugs in the latter stages of development. The Michigan location for the PhRMA announcement was not mere happenstance. “We believe that Michigan is one of the bright spots of biotech,” says Ken Johnson, a PhRMA SVP. “We wanted to highlight the progress being made there.” 

Among biotechs that have recently thrown down roots in Michigan is Sequenom Inc. The San Diego producer of genetic analysis products announced in late September its agreement to acquire the Center for Molecular Medicine, a clinical diagnostics lab located in Grand Rapids’ so-called Medical Mile. The Michigan Street stretch represents more than $1 billion of construction within a decade, comprising research and patient-care facilities. Sequenom reported receiving a tax incentive package valued at as much as $20 million over 12 years. 

In addition to tax incentives, Michigan’s 21st Century Jobs Fund helps to attract businesses in high-growth industries. Apart from the life sciences, its targets are alternative energy, homeland security and defense, and advanced automotive, manufacturing, and materials. The $30 million in funding this year was granted to 17 companies, 11 of them in the life sciences. 

	Among ingredients for success in biotech manufacturing locations, workforce is among the most important. Mitch Horowitz, a biotech site-selection expert and director for strategy at the Battelle Technology Practice Partnership, notes the success of North Carolina in developing its biopharma workforce. “It’s well understood there that the depth of the workforce is the result of the willingness of community colleges to teach the skills needed for those kinds of production,” he says. “Those things matter.” 

Like North Carolina, the mid-Atlantic states pride themselves on their biopharma workforce. Some 400 life science companies in the greater Philadelphia region employ 53,000 professionals and 310,200 workers in supporting roles, according to Select Greater Philadelphia, a regional economic-development marketing organization. Greater Philadelphia has more than 80 colleges and research centers affiliated with science and technology incubators, contributing to the biotech labor pool. 

Thomas G. Morr, president and CEO of Select Greater Philadelphia, says that the region is ranked first in the United States in terms of the impact of the biopharmaceutical industry on its overall economy. Such large multinational companies as GlaxoSmithKline, Merck, Wyeth, Johnson & Johnson and AstraZeneca roost there, and the region boasts a strong commercialization capacity in addition to its public health focus. “We offer world-class infrastructure and unrivaled support resources to accelerate drug commercialization, from R&D through distribution,” he says. 

Select Greater Philadelphia and partners have commissioned the California-based Milken Institute to study of the region’s bioscience cluster and measure its progress in an attempt to fuel expansion. Findings will be presented at the 2009 BIO International Convention in Atlanta. Partner organizations include BioAdvance, BioNJ, Delaware BioScience Association, Greater Philadelphia Life Sciences Congress, Pennsylvania Bio, the Pharmaceutical Research and Manufacturers of America, and PricewaterhouseCoopers. 

	Like greater Philadelphia, Indiana has a manufacturing focus based on proximity in its biotech appeal. The state is home to Eli Lilly, Cook Group Inc., and Roche Diagnostics, as well as the Indiana University, with its School of Medicine and its Emerging Technologies Center, a business incubator that includes bioscience companies. 

Indiana is also well positioned as a logistics center. More major interstate highways converge in the Indianapolis region than any other metropolitan area in the US, according to the Indy Partnership, a business development group for the 10-county Indianapolis region. Interstates 65, 69, 70, and 74 crisscross the region, resulting in 50% of the US and Canadian populations being within a one-day truck drive, and 75% of both populations being within a one-and-a-half day drive. Daviess County is the median center of population of the US. The state boasts a workforce of over 250,000 logistics employees and ranks fifth among states in volume of commercial freight. 

Recent legislation has allowed Indiana to develop a $3.5-billion infrastructure improvement fund for its 10-year Major Moves highway plan for road and transportation projects. A $974-million upgrade to Indianapolis International Airport is underway, as well as improvements to public airports. And a planned expansion of the I-69 artery will connect the NAFTA superhighway through southwest Indiana. 

	BioCrossroads, Indiana’s public-private collaboration to grow the life sciences, announced last fall the award of a $2.8-million grant from Lilly Endowment Inc. Through this grant, BioCrossroads works to “find, form and engage in strategic opportunities to build on Indiana’s life sciences assets,” according to marketing director Lori LeRoy. The multi-year grant funds charitable, educational, and scientific activities. 

COOK PHARMICA'S CELL-CULTURING FACILITY IN BLOOMINGTON, IN, WAS SUPPORTED BY BIOCROSSROADSLINX.

Grants from the endowment to support BioCrossroads led to creation of several public-private-university collaborations, including in 2007 BioCrossroadsLINX, a nonprofit initiative for advancing Indiana’s capabilities in drug and biotechnology development and manufacturing through educational and workforce programs and interregional collaborations. It helps Indiana companies connect with one another as well as with biotech centers around the US, including San Diego, San Francisco, and Boston.

	BioCrossroadsLINX has nearly 50 contract service providers for the pharmaceutical and biotechnology industries and more than 6,300 professionals working in toxicology, drug formulation, contract manufacturing, cold chain storage, to name a few. 

Partners include the Cook Group, the Indiana Department of Workforce Development, the Indiana Economic Development Corp., Indiana University School of Medicine, Ivy Tech Community College, and Purdue University. 

	Like Indiana, greater Philadelphia, and North Carolina, Massachusetts recognizes the importance of a ready workforce for biotech manufacturing. But the Bay State chooses to plant just one foot in the manufacturing camp while the other remains in the more ethereal innovation/R&D camp. 

In April, Massachusetts Biotechnology Council president Robert Coughlin unveiled a strategic plan that strongly advocates a focus on innovation, to capitalize on the proximity of Harvard, MIT, and other leading universities with biotech programs. “People aren’t coming here to open manufacturing plants,” Coughlin was quoted in a local press report.“They’re coming here from around the world to meet up with thought leaders.” 

The strategic plan presents a 2015 vision that lays the foundation for the council’s future direction: “to help Massachusetts enhance its premier biotech position by strengthening its focus on novel research and development, facilitating scientific and business collaboration, and advocating for supportive public policies, ultimately transforming patient treatment globally while driving the growth of the Massachusetts economy,” according to the plan.

	Although the plan does acknowledge that the state’s economic development efforts toward biotechnology are “complex and fragmented,” and that “municipalities often pose challenges to companies trying to establish an R&D or manufacturing presence,” it attaches less urgency to efforts to rectify these situations compared with finding capital for biotech startups. 

	The council’s vision likely came as a surprise to such stakeholders as Millipore Corp., which within days of Coughlin’s announcement unveiled a process development laboratory at the University of Massachusetts’s Lowell campus, a few miles from corporate headquarters in Billerica. 

The lab will “allow us to train our students on state-of-the-art equipment they will use in their future—or current&mdash;jobs,” said chancellor Marty Meehan at the opening ceremony. “Together, UMass Lowell and Millipore are helping to grow the life sciences workforce.” Millipore donated $225,000 in equipment and services to the laboratory, which will be used for downstream purification research as well as training for students and industry professionals. The equipment includes clarification, chromatography, ultrafiltration/diafiltration systems, and disposable mixing systems. 

“Given the dynamic nature of our industry, access to cutting-edge technology and solutions is critical,” said Jean-Paul Mangeolle, president of the bioprocess division at Millipore. “By partnering with UMass Lowell, we further our own knowledge while supporting the local community and helping to educate students who will one day enter the workforce.” 

The new lab is adjacent to, and works in tandem with, the recently outfitted IPS-Wyeth-Dakota Systems biomanufacturing pilot plant. Both are part of the Massachusetts BioManufacturing Center at UMass Lowell, an interdisciplinary research, development and education initiative supported by the University of Massachusetts and the state. 

	Just one week earlier and 40 miles west, Worcester Polytechnic Institute launched a program intended to train displaced workers to fill hundreds of open jobs in biomanufacturing. 

The “fundamentals of biomanufacturing” program was developed by a team from WPI, Abbott Laboratories, Bristol-Myers Squibb, Shire Human Genetic Therapies, and other life sciences companies to give displaced workers the knowledge and experience to make the transition into biomanufacturing. The first session of the eight-week evening certificate program began in late April. Displaced workers may be eligible for tuition support through the state’s individual training account program. 

“This new program is a classic win-win,” said Stephen Flavin, associate provost and dean of Corporate and Professional Education at WPI, in an announcement. “It helps people obtain new skills and it helps the life sciences industry to continue growing in central New England.” 

	Diagonally across the country from New England is Biocom in San Diego, a regional life sciences association representing more than 575 member companies. The association focuses on initiatives for public policy, workforce development, group purchasing, and other services. But in contrast to other regional organizations, Biocom attempts “to position the Southern California life sciences community to achieve individual and collective success on the world stage,” according to Joe Panetta, CEO. 

A current initiative involves capitalizing on Biocom’s West Coast location to aid biotechs in making connections in Asia. The organization is hosting CalAsia 2009 (biocom.org), an international forum to be held in June in San Diego to help member companies initiate relationships with companies in Asia. 

States continue to push for a ‘bio-economic’ foundation

Workforce and Supply Chain Top Location Must-Have Lists for Biopharma

One trend that pops out of Pharmaceutical Commerce’s survey of economic-development efforts this year is that local and state-based groups are linking up to strengthen their regional offerings. Southeast BIO, for example will be using this year’s BIO meeting in Atlanta to showcase its unified front for biopharma. Southeast BIO brings together groups in Florida, Georgia, Alabama, North Carolina, South Carolina, Tennessee and Virginia. Organizations in and around Philadelphia are promoting a biopharma cluster that crosses the state lines of New Jersey, Pennsylvania and Delaware. And California now has the California Life Sciences Alliance, uniting local efforts in the San Diego area, Los Angeles, and San Francisco. 

“More companies want to understand how to do business in Asia,” says Panetta. “That’s what we are hearing from CEOs. We’re bringing the Pacific Rim to San Diego for two days to better make those connections.” 

Panetta notes that a member company is actively selling products in Asia, but not all Biocom relationships involve manufacturing. Drug development and clinical research are also hot topics, especially given the lower cost of doing business in Asia. Some relationships are moving toward the development of manufacturing capabilities, with member companies expanding in Japan and China now. 

“The biggest challenge is understanding how to initiate the relationship,” Panetta says. “We were being told by CEOs that they needed the opportunity to interact with the right people. We’re sending out staff to China to report back on opportunities. And in Australia, we’re finding that Queensland is a rich environment for clinical trials, with population demographics similar to ours. Plus, it’s more cost effective to conduct trials there. We’re helping companies to make those connections.”

Biocom also works with organizations that provide services to life sciences companies once they make relationships in Asia, including law firms and clinical trial organizations. “Once we help a company make a connection, the next step is that we network in the service providers,” Panetta says. 

Biocom has company in California when it comes to representing biotechs. The Southern California Biomedical Council (SoCalBio) is a trade association of the life-science industry in greater Los Angeles that promotes the medical device and biotechnology industry in Los Angeles and Orange Counties as well as adjacent communities. BayBIO is the northern California’s life sciences association. All three are aligned via the California Life Sciences Alliance, which pools resources to address public policy issues, ensuring that elected representatives in Sacramento and Washington DC, as well as the public at-large, understand the life science industry’s impact and importance for California’s future.

	“Biocom is a southern California organization,” says Panetta, “but our board has charged us with representing the industry. We advocate and promote southern California life science and medical device companies. Our membership includes universities and any group that interfaces with our companies.” PC 

	Given economic uncertainties, regulatory delays, and the resulting lack of clarity in how to pursue long-term product security objectives, many drugmakers have reset their sights on short-term objectives. Anti-counterfeiting product and service vendors, recognizing the challenges drugmakers are facing, are stepping up with products and services geared to the short-term need at the same time they continue to toil on the intractable problem of counterfeits.

“It is impossible to obtain a precise estimate of the production of counterfeit medical products on national markets,” according to the summary of the World Health Organization executive board meeting held in Geneva in January. “However, the number of incidents detected in 2007 increased to more than 1500, roughly a 20% increase over that for 2006 and a 10-fold increase over 2000.” 

It amounts to a good-news/bad-news scenario for the product security industry: The good news is the economy: “Three million people out of work, and three million more expected this year…they are all looking for cheaper ways to get medications. It’s a counterfeiter’s and illegal diverter’s dream,” says Dean Hart, SVP at NanoGuardian (Skokie, IL). 

NOSCO MULTILAYER SECURITY ON PACKAGE LABELS

But the economy, combined with e-pedigree initiative delays, is also the bad news: “There were certain customers who had significant e-pedigree budgets pulled from them. Some asked for the money to be put back toward traditional anticounterfeiting. That’s how some funds got freed up,” says Gregg Metcalf, industry market manager at packaging supplier Nosco (Gurnee, IL). He cites an increase among drugmakers who are looking at a traditional anticounterfeiting features plus 2D barcode serialization technology. “Since the delay, we’ve gotten five new customers interested in color-shifting inks with high-end security taggants.” 

What they can do in the short term is combine traditional anticounterfeiting with serialization, but sans pedigree. “This lets them start to look from a long-term standpoint: what needs to be done internally? And externally, how will it flow through the supply chain?” Metcalf says that Nosco now has some clients who are starting pilot projects. 

	In the US, pedigree efforts like California’s—pushed out to 2015&mdash;and the FDA’s&mdash;pushed out to 2010 (just to set a standard, not necessarily to implement it)&mdash;have slipped because their concepts were “too broad, too much change across too many stakeholders&mdash;manufacturers, distributors, retailers&mdash;and all new technology,” says Jim Rittenburg, VP at brand-protection company Authentix. (Addison, TX) “It’s too complex to bite off at once. A more stepwise approach is needed.” 

Drugmakers know, however, that they can’t take their eyes off the brand-protection ball entirely, no matter how bad the economy or how slow the regulators. (

See Pharmaceutical Commerce’s 2008 Product Security Supplement, September 2008, for background

.) “They figure they’ve got to do something now,” says Metcalf at Nosco. 

In fact, as counterfeiters become more sophisticated, brand owners increasingly seek multiple layers of product protection: “One feature for the general public, one for forensics, and one for law enforcement,” says Adam Scheer, marketing director for authentication solutions JDSU in Milpitas, CA. “The layering of the technologies has become important.” 

In fact, some brand owners are even using layers of the same technology. Constantia Hueck Foils (Wall, NJ), maker of CPI security foil, has some customers who apply the foil in layers. “We see various versions of that to make a more robust solution,” says Fred Lutz, sales and marketing director. “Complexity comes with the profile of the drug. The higher the profile, the more complex the anti-counterfeiting solution.” What’s key is layering that is “simple, not complicated, and dynamic, meaning it can be changed,” he says, to accommodate manufacturers who require regularly scheduled security adjustments. “And the solution has to be plug and play, with reasonable economics.” 

Technology vendors continue to develop new offerings, if recent exhibitions are an indicator. At the Interphex show (New York; March 17-19), Pharmorx Security (Southborough, MA), showed a combined authentication systems (e.g., high-resolution surface imaging, security inks, serialized barcode) with a software service, AuthentiTrack, to collect and verify identification data throughout the supply chain. Meanwhile, at the HDMA Distribution Conference (Baltimore; March 15-17), On+qor (Bridgeville, PA), a provider of rigid packaging for parenterals, announced that it will implement Verify Brand’s (Minneapolis) Digital Authentication, Track & Trace (DATT) system at packaging lines, as well as set up the data center to integrate Verify Brand’s serialization processes with a warehouse management system or enterprise software system. 

Also at Interphex, Alpvision (Vevey, Switzerland) announced that it has developed a method to use the unique patterns left on the surfaces of punch dies after machining (and which are transferred to tablets from that die) as a ready-made authentication system. A tablet can be analyzed in a device as simple as an office document scanner, and when the scan is compared to the stored image from the original die, the tablet can be authenticated. Finally, Oystar Manesty (the Fairfield, NJ, arm of Germany’s Oystar Group) showed a tablet press featuring an external lubrication system called Accuspray that can also apply a taggant on a specific location in the die, such that the taggant is positioned on the surface of tablet for easy in-field verification. 

	Cortegra Group Inc. (Parsippany, NJ), which provides a range of anticounterfeiting solutions including one that uses the microstructures of the substrate of a drug package to create a unique digital signature, views its solutions in the context of meeting eventual pedigree goals while solving near-term authentication needs. “We’re making it more seamless for companies as they invest in pilots,” says Narendra Svrivatsa, business development manager at the packaging services provider. “This is the time when you look at strategic investment. Return on investment (ROI) becomes much more significant now.”

	Many pharmaceutical manufacturers continue to view the ROI from such e-pedigree technologies as RFID as mandate-driven, he says. “Right now it’s built into the cost of goods sold. Companies haven’t stepped away from that view yet,” says Svrivatsa. “But as they strive to reduce costs, and see what they can achieve through more efficient supply chains, this is where the ROI payoff is going to be huge.” 

The difficult economy that is driving strategic thinking among drugmakers is likewise driving strategic thinking among product security providers. But in their efforts to keep brand owners a step ahead of the counterfeiters, security experts are going beyond the physical package and the pill to proactive services that involve statistical sampling from retail locations in an attempt to find fakes weeks or months before they might otherwise be detected. 

One such service, NanoGuardian’s Closed Loop Protection Program, amounts to a proactive early warning system to pharmaceutical manufacturers. “Instead of realizing months later the reasons why they’re getting poor results or adverse events, hopefully this puts them ahead of the game,” says Hart of NanoGuardian. 

The program works as follows: Tablets or capsules are produced, coded using the company’s nanoencryption technology, and distributed by manufacturers into the supply chain. Pharmacies throughout the US have been identified and that information is housed in a database. Using an algorithm-based process (created with pharmaceutical development consultancy Torbeck and Associates of Evanston, IL, and detailed in the January 2009 white paper, 

The Statistics of Counterfeit and Diversion Detection in Pharmaceutical Supply Chains

), specific pharmacies are randomly selected to provide each month’s sample. 

Sample prescriptions are obtained via a national physician panel established by NanoGuardian and are filled at the randomly selected pharmacies. The acquired samples are sent to a NanoGuardian facility, where the product is authenticated and the forensic-level nanocodes are decrypted. Sampling information is reported to the manufacturer, including the date and location of each sample taken and the authentication results. Suspect counterfeits—those lacking nanoencryption&mdash;are reported to the manufacturer.

	In addition to authentication of the product, NanoGuardian provides the nanocode within the authentic product to the manufacturer. A secure Web-based application validates the nanocode against associated information provided by the manufacturer separately, including product information (strength, expiration date), manufacturing information (location, date, batch and lot number), distribution information (country, distributor, wholesaler, chain), and e-pedigree technologies (RFID, 2D barcodes). Information for each sample that contradicts any of these validations yields manufacturer notification. 

	Triggering events might be the disbursement of product in, say, a Chicago pharmacy that was packaged for distribution in Latin America, or the appearance of expired product that is being dispensed through a retail pharmacy, as the paper explains. Such situations are among the more difficult instances of counterfeiting to detect, the paper says. 

Hart says that most of the companies NanoGuardian is working with are focusing on the US marketplace. “When they find a problem, they can work with their supply chain partners to find out where it’s coming from,” he says. 

NanoGuardian utilizes a “razor/razor-blade” cost model. Drugmakers that work with NanoGuardian pay a one-time cost of about $1.5 million for a custom nanoencrypter machine. Upon doing so, “you’ve bought the razor,” says Hart. The “blades” that do the nanoencryption represent an ongoing cost of “fractions of a penny per dose, and nanoencryption contracts typically are done on a yearly basis.” The Closed Loop Protection Program is available on an annual basis, too. 

	In a manner similar to NanoGuardian’s, JDSU has evolved its offerings from physical security to product security services. The company now boasts three product security elements, says Scheer: technology, applications, and program management. Its authentication solutions division is the culmination of an effort it began in early 2008 with the acquisition of American Banknote Holographics (ABNH), the security pioneer that introduced holograms onto the globes of Mastercard credit cards. It began its security work based on the perceived threat to paper currency of the color copiers introduced in the 1980s. 

The company today boasts expertise in such pigment-based technologies as color-shift inks as well as such covert technologies as its Charms document authentication solution, which uses printable microstructured taggants that can be added to coatings or inks on top of a substrate, and personalized with letters, numbers, symbols, logos, colors, shapes, and textures. Charms can also be used in the company’s overt SecureShift color-shifting ink and standalone in varnish, the company says. Charms can be incorporated using conventional printing processes, such as flexography, gravure, pad, and silk screen.

	JDSU also supplies the MetaSwitch label, which adds a non-shifting color to SecureShift technology, and Phantom, a shadow effect that moves through the SecureShift label. SecureShift can be used on labels, closures, shrink-wraps, blister packs, and holograms or in the plastic of a bottle. 

“We’re a full-service vertically integrated shop,” says Scheer. “We can do prototyping, and manage security inventory for our customers. Also, we have design professionals experienced in security and brand packaging.” 

Concerning physical security, Scheer says that he is “seeing the importance of layering technologies growing more and more, and of integrating technologies to achieve multiple purposes. “The brand owner is no longer satisfied with just one technology,” he says, with some requesting “seven, eight, or nine features in one.” 

	FDA’s Congressional mandate is to recommend a serialization system within a year, setting the stage for (potentially) a national track-and-trace system that would encompass state-level pedigree laws as well as securing bidrectional flow of product data up and down the supply chain. In January, the agency released draft guidance for public comment on a “serialized National Drug Code” (sNDC) structure wherein the existing NDC codes would be combined with additional digits to provide an item-level identification—a first step to a track-and-trace system. Without explicitly saying so, FDA is looking to align the sNDC system with the evolving standards of the GS1 organization (Pharmaceutical Commerce, Jan/Feb, p. 23). After the public comment period, FDA will be in a position to propose a final standard. 

At the same time, the new Congress does not appear to be diminishing its interest in pharmaceutical security. A bill was introduced (H.R. 1450) to raise penalties for manufacturing or distributing counterfeit product, and a bill that was introduced in the last Congress, H.R. 5839, providing for a national pedigree and serialization system, is expected to be introduced. 

Serialization projects are not at a standstill: AstraZeneca, for one, is continuing its global serialization effort. Two key vendors are Systech International (Cranbury, NJ), a maker of packaging execution systems for the pharmaceutical industry, and Scottsdale, AZ-based Axway, a provider of multi-enterprise solutions and infrastructure. 

(Axway is also the winner of this year’s iBusiness Solution Award from the Healthcare Distribution Management Assn., which recognized Axway’s Trade Activity Manager solution for innovative supply-chain management; Axway’s serialization system is one of the modules of the Trade Activity Manager.) 

Systech manages serialization in packaging while Axway manages the process—aligning serialized packaging data with business and supply chain data for end-to-end visibility and traceability, according to a March announcement. “Axway and Systech are deploying solutions for mutual customers,” says Bruce Harder, Systech director of business development and marketing, in the announcement. 

Systech provides the foundation of item-level serialization and aggregation of serial numbers to packaging units. Systech’s software manages the writing, reading, and printing of serial numbers at the line level and controls the provisioning of serial numbers within the packaging environment. 

Axway Track & Trace collects and manages serialized product data throughout the supply chain and links it to master data to enable viewing of product lifecycle details. The solution includes product authentication, counterfeit and diversion detection, global regulatory compliance, recall management, and data integrity assurance capabilities. PC 

SIDEBAR: ANTICOUNTERFEITING SAAS TOOL TARGETS GLOBAL INTERNET SECURITY 

Real-time web mining technology gathers data for use by legal and federal entities

	Web-mining software that trolls for counterfeit high-tech products—tailored to the drug industry last fall&mdash;has found twice as many counterfeiters in the first eight weeks on the job for a large drugmaker than the drugmaker’s existing anticounterfeiting tool, according to enterprise risk management (ERM) software maker New Momentum LLC. The Enterprise Brand Intelligence software also enabled the drugmaker to identify potential counterfeit networks. 

“You have to be real time,” says Chris Jensen, VP for marketing at New Momentum (Santa Clara, CA). The global drugmaker, which was “losing billions” on a particular drug, was using a semi-automated anticounterfeiting product that provided reports only weekly, in contrast to the 24/7 monitoring of the Enterprise Brand Intelligence SaaS offering. “The big syndicates are slick in how they come on and off the Internet,” she says, so the increased visibility into global Internet activity is required. 

Jensen believes that almost all counterfeit and gray market drug activity is on the Internet now. Various international estimates put the volume of drug counterfeiting at 10% of worldwide volume, equivalent to about $60 billion/yr. In the U.S., drug counterfeiting (estimated at 1% of volume) is a lesser concern, but drug diversion from one sales channel to another is a higher one. New Momentum sees “a lot of activity coming from Asia,” she says. A drug offering that appears to be coming from Canada may actually be from Korea. “We can identify that.” 

Software as a service (SaaS) allows clients to make use of a software program without the need to install it on the clients’ IT systems. For New Momentum’s offering, users configure a dashboard and specify potential counterfeit activity details that will trigger email alerts. Customers can do a test buy of the counterfeit product, and the software captures data regarding details of the offer, including images. The data can be used as evidence in legal channels or turned over to federal agencies for their use. “Federal agencies such as Customs and Border Protection are getting much more involved,” Jensen says. 

New Momentum is now talking to major drugmakers and going into pilots, she adds, and expects three or four more pharmaceutical company clients in the coming months. 

Drugmakers recalibrate anti-counterfeiting and serialization efforts

Even While Regulatory Mandates Slip Into the Future, Brand Protection Needs Remain

	The “L” in 3PL is quickly making the acronym a misnomer. From warehousing and transportation management, to accounting, risk mitigation, and fielding adverse-event reports, ascribing the range of services now delivered by these nimble industry partners to a business labeled “logistics” is becoming less accurate. For drugmakers big and small, 3PLs are becoming a means of staying focused on core drug development and manufacturing competencies—for many their best hope as a fast-changing business struggles through tough economic times.

To be sure, logistics remains the core of 3PL service offerings, and the function that drugmakers continue to outsource with some eagerness. Just ask Merck, which in January brought logistics outsourcing to new heights when it struck a deal with UPS Healthcare Logistics for the 3PL to take over two of Merck’s distribution centers, near Atlanta and in Reno, NV. The majority of Merck’s U.S. vaccine and pharmaceutical volume flow through these two cGMP-compliant centers, which together add more than 200,000 square feet of healthcare logistics space to the UPS network. 

“The idea was to get Merck from where it was in fixed assets into a more variable scenario,” says Bill Hook, UPS VP for healthcare logistics global strategy. “We allow them to grow or shrink in those buildings so they’re not having all those assets tied up.”

	To Hook, the Merck deal illustrates the need among companies in traditional pharmaceutical markets to become nimble, a quality less valued in the blockbuster drug business model than in the scrappier, highly competitive environment of today. “Going forward, there are so many challenges to how drugmakers serve their customer base. Big changes are coming in the next few years.” 

	Merck was the change driver, according to Hook. “It came from a senior executive who wanted to totally change the way they were managing their global supply chain,” he says. “Merck wanted to select a few key global logistics companies to work with to radically improve supply chain processes, rather than look for efficiencies and incremental improvement. He wanted to reinvent the game for supply chain activities.” Merck ultimately picked two global companies to work with, says Hook, and reduced the number of its logistics service providers around the world. 

The Merck vision drove change at UPS. “We had to organize around healthcare as a company, rather than around products,” says Hook. “We changed our structure in how we’re going to face Merck and how to map out their supply chain.” UPS hired very knowledgeable people to develop unique service capabilities for healthcare. Among these were transportation services for temperature-sensitive products and “last mile” home delivery. Hook’s team then developed a business case for investment in information technology (in part to aid in regulatory compliance) and physical infrastructure. It then sold the business case internally. 

“It was a big, big change on all fronts to support the strategy,” says Hook. Changes justified in the business case involved new IT functionality and new emerging technology processes in addition to the upkeep of existing healthcare platforms. “It’s not just a case of meeting requirements, but also investing in emerging technologies.” The 3PL even integrated technology from its package network to enhance logistics visibility and speed. 

Merck’s urgency around the change is evident in the speed of implementation. UPS began operating the facilities nearly in conjunction with the January announcement. By the middle of the month, UPS had offered a job to every Merck person employed at the facilities. Most of them accepted, says Hook. And UPS began work in the facilities to accommodate the needs of other drug- and non-drug-company clients that will be serviced from those locations. “They will very quickly become multi-client facilities,” says Hook. 

	Like UPS, Cardinal Health is responding to an increased openness among drugmakers to discuss forward-thinking supply chain models that are tailored to them. “That’s really our focus going forward,” says Rob Brown, sales VP for Cardinal Health’s manufacturer services business. “We’re more focused than ever on recommending innovative approaches to inventory positioning, product security, and creating transportation efficiencies. Customers are also more open to learning about the benefits of both dedicated and hybrid operational models.” 

The Big Three drug wholesaler’s 3PL arm focuses on specialty pharmaceutical services. It continues to grow its client base and expand operations, according to Brown. The company recently added space to its operation in LaVergne, TN, and last fall opened an 88,000-square-foot facility in Reno. “We are focusing on what’s important to specialty manufactures and their customers: accurate inventory, product integrity, on-time and accurate orders, and flawless back-office execution,” Brown says. “We put tremendous effort into building relationships with our manufacturer customers. We build partnerships, and are focused on understanding partner needs to deliver additional value.” 

To illustrate, Brown describes Cardinal’s efforts to improve the metrics that are important to clients’ downstream customers—e.g., order processing and receipt time, order accuracy, and chargeback processing times&mdash;which augment the tried and true metrics important to the manufacturers themselves: inventory accuracy, receiving dock-to-stock times and the like. 

	“By listening to the needs of our upstream and downstream customers, we’re able to improve supply chain efficiency and deliver value to our customers,” says Brown. Cardinal has also leveraged the capabilities of its wholesaler parent to expand specialty pharmaceutical services in international transportation: customs clearance, freight forwarding, and export services. Additional offerings align specialty pharmaceutical business services with Cardinal Health’s specialty distribution, reimbursement, patient access, and marketing services. 

Leveraging the capabilities of a parent company that happens to be a Big Three drug wholesaler has also occurred to 3PL ICS, part of the AmerisourceBergen Specialty Group. ICS offers a portfolio of outsourced services, says Doug Cook, VP for client services. His objective is to integrate not just across ICS but also across the portfolio of AmerisourceBergen Specialty Group. “There’s more appetite for that,” he says. “In the past, we may have seen manufacturers using multiple service providers to meet their needs. Now, a lot of manufacturers are looking for us to be a one-stop shop, to make their lives as simple as possible.” 

Cook reports that ICS continues bringing on clients at the same pace as the past few years. But he notes that some clients and potential clients traversing the drug approval process may be moving slower compared to years past. “We see the FDA emphasis on risk evaluation and mitigation strategy (REMS), which can take different forms,” Cook says. “We’re having more discussions about the need for clinical types of programs in combination with distribution programs. Registry capabilities are one example, whether to meet an FDA requirement or for a voluntary program. We see those two components—distribution and clinical services&mdash;running into each other, and we’re positioned to put those components together.” 

The ICS client base consists of small- to medium-sized pharmaceutical and biotech companies. Startups are a core segment for the 3PL, but it boasts large manufacturer clients, too. Programs run the gamut from full order-to-cash services for range of products in a manufacturer’s portfolio to very targeted services for drug-specific situations.

	“We’re happy that we continue to find good clients—those who want to see that tight integration across the core processes that they need to accomplish. They want us to act as an extension of them. That’s were we can be most successful,” says Cook. 

	Indianapolis-based Sentry Logistic Solutions also continues to find and sign clients. CEO Jennifer Marcum reports that in spite of the sad state of the economy she has seen activity in the past few months, the result of contracts that have been in process for some time.

	Vaccines, with their stringent temperature and humidity requirements, are a staple for Sentry. “We get a variety of requests for solutions that companies aren’t readily finding,” says Marcum. She sees vaccine demand growing as the concept of wellness and disease prevention is taking hold in healthcare. She notes the $900 million allocated in the Federal Recovery Act to prepare for pandemic flu and to support the advanced development of countermeasures for bioterror and nuclear threats. 

In classic 3PL form, Sentry specializes in product handling and takes pride in its validated systems and facilities. The company recently passed a stringent insurance audit for high-value APIs. “We exceeded the norms for industry,” says Marcum. Her goal is to maintain Sentry facilities in top form according to both insurance and regulator requirements. She points out that sub-par facilities and systems—antiquated buildings, past-due preventive maintenance, inadequate security systems&mdash;can cost companies millions of dollars.

The facilities and equipment are especially important given the sensitivity of vaccines to temperature. “We want to make sure the product is protected all the way to the end user,” says Marcum. With the growth in retail clinics and their role in providing annual flu vaccinations to the public, Marcum says Sentry demonstrates the benefit that a cold-chain provider brings to retail clinics. It all comes down to specialized facilities and equipment, operated by personnel having the protocol expertise to safely store and transport temperature- and humidity-sensitive products. “We can show temperature history and demonstrate that product integrity has been preserved,” she says. 

As Sentry demonstrates, warehouse and product distribution services remain key competencies required by drugmakers. Such functions as inbound product receipt, warehouse storage, inventory control, and outbound order processing may not grab headlines but are in many respects the cost of entry to the 3PL business. At RxCrossroads (Louisville, KY), client access to this kind of data is the goal. The company provides clients with tools to manage customer databases and the distribution channel, from warehouse to patient. Most such services are Web-based and provide real-time information. 

RxCrossroads handles both frozen and room-temperature products. Its warehouses are temperature mapped and validated, according to the company. Order processing is supported by an ERP/WMS system that is CFR Part 11 compliant. And the company offers a proprietary case management package, RxCrossware NG, for reimbursement, patient assistance, and product support programs. 

	The big box movers are also paying attention to temperature and humidity monitoring and reporting. Logistics giant DHL Global Forwarding announced in January the opening of a life sciences center with such capabilities in Carolina, Puerto Rico. “Few industries pose as much of a challenge to shipping and logistics as life sciences and healthcare,” stated Angelos Orfanos, president of the life sciences & healthcare unit in DHL Global Customer Solutions, in an announcement. “Temperature instability can impact the quality of the material, increase the product order-to-delivery cycle time, and create additional process management costs.” DHL handles small and large volumes of vaccines, active pharmaceutical ingredients, and other temperature-sensitive pharmaceutical, biotech, diagnostic, and medical materials. 

The new center is part of a DHL initiative targeting the shipping requirements of pharmaceutical, biotech, and medical device manufacturers doing business in Puerto Rico. Despite its parent company’s withdrawal from U.S. small-package express operations at the end of last year, DHL Global Forwarding, Air Express and Exel supply chain operations continue to be active in the U.S. market. The new Puerto Rico life sciences center has 70,000 square feet of warehouse space. 

In June 2008, DHL Global Forwarding announced the expansion of its network of air-transportation Envirotainer QEP certified sites for cold chain shipping that provide for temperature-controlled package handling, in-transit visibility to shipments, and controlled environments for cold chain storage. DHL personnel are trained and certified by Envirotainer, the Lagga Malma, Sweden, developer of aircraft containers for cold-chain shipping, for safe and proper handling of its containers at major airports worldwide. 

DHL Global Forwarding is primarily a carrier, but the company has surrounded basic shipping and warehousing with forwarding, customs and related services; it also has a joint venture with air transporter Lufthansa called LifeConex (Plantation, FL) for shipment tracking services. Other major air or ground carriers, such as BAX Global (along with subsidiary Schenker Logistics) FedEx (Memphis, TN) and Penske Logistics (Reading, PA) provide competitive services. The ranks of smaller 3PLs such as Priority Solutions (now a subsidiary of Thermo Scientific) MD Logistics (Plainfield, IN), Cavalier Logistics (Dulles, VA), Panther Expedited (Seville, OH), Life Science Logistics (Fort Worth, TX), Catapault (Buffalo, NY), and Kenco Logistics (Chattanooga, TN) add to the mix. European-headquartered logistics companies such as Kuehne + Nagel, Ceva Logistics, Panalpina are building their U.S. operations. 

	The forward-looking supply chain models now being created by big pharma and big logistics have a counterpart in smaller logistics providers that develop very specific service offerings—many of them way beyond the definition of logistics&mdash;for smaller and startup companies. “UPS can move a lot of boxes,” says Ross Bjella, president at Menomonee Falls, WI-based DDN. “For us, it’s more about providing a full suite of services&mdash;those that require specialized knowledge of the pharmaceutical industry.”

	Bjella notes that in the past drug companies would look for cost reductions through the shared-service model. “Now,” he says, “the question is less about how can you save me money, but rather how can you provide me business flexibility and options? DDN aligns its interests with those of its manufacturer clients. We’re not worried about pushing boxes. Nor are we a division of a wholesaler,” he says. 

The DDN niche is services for emerging life sciences companies. “Their challenges are significant,” says Bjella, “between cash flow problems and new-market entry problems. Sometimes they don’t weather well. So we have to accommodate for those fluctuations in business activity.” 

DDN’s service offerings might best be understood by envisioning a biotech business consultancy turned service provider, rather than a more traditional logistics company that has evolved by adding business services to a core logistics offering. Emerging companies, striving to be virtual companies, often employ a scientific expert, a sales and marketing expert, and executive management, says Bjella. “They rely on us for the majority of the rest of their business functions. Those people are high touch—they need a lot of information. They tend to buy the full suite of services.” 

	Sales and marketing VP Michael Bartholomew adds, “We’re somewhat of a didactic company—we provide efficiency and proficiency, helping smaller companies make better decisions in the marketplace regarding which products to launch.” 

The new wave of clients are research driven, he adds, citing Memphis Bioworks, a collection of public, private, academic, and government entities joined by a nonprofit foundation to create a center for the development and commercialization of bioscience technology. “These companies are loaded with R&D and product development people,” says Bartholomew. “But they don’t have true business leadership experience. If they were to stay on their own, what would they do next? They ask us to help them make these decisions.” 

DDN can provide the services of accountants and lawyers, for example. Of course, Bartholomew says, some of its services are commoditized and the company does in fact move boxes. “But those are not the things that five years from now will differentiate us,” he adds. 

In February, DDN launched a medical affairs subsidiary business with the goal of providing “accurate, timely, and audience-appropriate communication services in the areas of medical information and regulatory affairs,” according to a company announcement. The subsidiary will help life sciences businesses with post-launch support. It will also provide regulatory insights in preparing and submitting adverse event reports, labeling management, product complaints, and medical and technical product inquiries. 

“In these economically challenging times, the life science industry is recognizing the need to access services that allow for infrastructure streamlining, while still maintaining rigorous quality standards and the highest level of customer service,” said Carole DeRoche, president of the new division, in an announcement. PC 

Moving boxes is becoming just one of a growing slate of services from third-party logistics (3PL) providers

3PLs Rise in Forward-Thinking Supply Chain Models

	In the vast ocean that is U.S. healthcare, there may be no business that has such a combination of medical knowledge, patient interaction and small-business entrepreneurship as independent pharmacies. They deliver high-tech pharmaceuticals; they deal with onerous Medicare regulations; they have more contact with patients than doctors do; and yet they worry about keeping sidewalks and windows of their storefronts clean and stocking the right seasonal candies.

The pharma industry, broadly speaking, spends relatively little time focused on independent pharmacies, simply because they are so dispersed and so numerous; the Big Three wholesalers have addressed this by rolling up thousands of independent pharmacies into semi-franchises or buying networks for pharmaceuticals. But in the coming world of “health management” and retail health clinics, they might pay a vital role in delivering healthcare and maintaining pharmaceutical market shares. 

According to IMS Health’s analysis of pharmaceutical distribution channels, independent pharmacies rank No. 3 in terms of dollar volume (Fig. 1), but a strong No. 2 in terms of scrips processed. A main reason for this is the greater proportion of generic meds that independent pharmacies dispense, which greatly distorts the sales volume figures. If current trends in high-value, specialty pharmaceuticals continue, clinics, currently No. 4 on the sales list, will pass independents in 2010 or 2011, as that class of therapeutics—which tend to go into clinical settings&mdash;is growing much faster than pharmaceuticals overall. 

Another hallmark of independent pharmacies is their concentration on pharmaceutical sales. Where chain drug stores have about 72% of their store sales from prescriptions, independents have 90%, according to the 2008 NACDS Chain Pharmacy Industry Profile.

	In its 2008 NCPA Digest (sponsored by Cardinal Health), the National Community Pharmacists Assn. (Alexandria, VA) reports that average store sales have declined for two years running, reaching $3.6 million per store in 2007 (Fig. 2). Additionally, 19.2% of member pharmacies operated at a loss in 2007, a figure that is actually down from preceding recent years. Those economic factors are one of the reasons that, according to NCPA, 1,100 pharmacies closed their doors in 2006. 

NCPA counts 23,218 independent pharmacies, many of which are members of its association. According to NACDS data (which totes up independents and other pharmacies slightly differently than NCPA does), the number of independent stores has been declining year by year since 2000, reaching 16,888 in 2007. (Chain stores, on the other hand, have been growing by several hundred per year over much of that time frame; the 2007 number is 22,209 chain stores.) 

The year 2006 was when independents took a hit from the Medicare Part D program which, while increasing the number of Medicare patients who received government-subsidized pharmaceuticals, also damaged the reimbursement process, leading to cash-flow problems that pushed less-well-capitalized pharmacies over the brink. 

Currently, the independents (like all retail pharmacies) are worried about the push by CMS to AMP (Average Manufacturers Price) for Medicare reimbursement. After attempting to establish the reimbursement system, and then setting AMP prices that were in some cases below the acquisition prices that pharmacies actually pay, NACDS and others sued CMS, winning a stay of the AMP reimbursement system. 

NCPA wants to go one step farther: to establish a legal buying network for themselves, that would provide purchasing power comparable to the big PBMs and retail chains. In the last Congress, two bills (S.2161 and H.R. 971) were introduced to create an anti-trust exemption for independents. The bills are expected to be re-introduced in the new Congress, according to John Norton, a spokesman for NCPA. NCPA, along with other pharmacy groups, met with the Obama Administration transition team in mid-December, and has a long list of potential enhancements of the role of independent pharmacy that it hopes to achieve. 

	Independent pharmacies, playing to a strength they developed long before the encroachment by chain and mail-in pharmacies, are proving themselves a key link in the pharma value chain: two-way conduit between drug maker and drug taker.

Their greatest potential—and the most important service they can provide to drug makers&mdash;lies in improving patient adherence to drug regimens, in counseling, and in monitoring patient health, and then feeding back data to manufacturers on the results of these efforts. 

Such potential, as it is now being developed, is providing independents a competitive differentiator with large drug store chains and mail order pharmacies, as well as retail outlets and supermarkets. 

“The patient relationship that the independent pharmacist has and is trying to maintain is something that pharmaceutical manufacturers cherish,” says Brian W. Huckle RPh, executive director at Pharmacy First, a national network of retail community pharmacies that provides both business services and purchasing programs on par with that available to big chains and retailers. 

“The chains can’t do that,” he adds. “Manufacturers have spent years and millions of dollars trying to buy their way into the chain industry when in reality they’ve got nothing. The chains don’t have what the independents have.” 

	Independent pharmacies are “reflective of what manufacturers want,” says Timothy J. Canning, president of Health Mart, a McKesson Corp. franchise unit for independent pharmacies. “Their hallmark is patient relationships. It’s more critical today that patients are compliant with their drug regimens.” 

Mining the independent pharmacists’ up-close patient relationships for information useful to drug makers and pharmacists alike has been a challenge. But the efforts of such industry groups as Pharmacy First and of the Big Three drug wholesalers—who are betting heavily on the independent pharmacy channel&mdash;are beginning to bear fruit. 

“We create programs for independent pharmacies around what manufacturers want—compliance and persistence&mdash;via reminder letters, face-to-face counseling for patients, and more,” says Canning. “We also work with some manufacturers around disease states and wellness.” 

	AmerisourceBergen group VP for program management in the retail division Jim Grigg describes Healthy Connection, one of the tools that ABC provides to its independent pharmacy customers, which helps them communicate regarding a particular disease state, for example. “It’s what the suppliers are looking for,” he says. “We think we’ve carved a niche with the independent pharmacies.” 

Things weren’t always so cozy between big drug wholesalers and independent pharmacies. “The wholesaler/independent pharmacy relationship has become more of a partnership than it was eight to ten years ago, when it was probably perceived as being more adversarial,” says Jay Williams, VP for marketing management at Cardinal Health’s retail pharmacy business.

Williams’s colleague, marketing director Rob Schlissberg, notes that independent pharmacies, as customers of wholesalers, have changed in multiple ways over the past few years. 

“Margins are down and they need to generate new revenues to compensate. Independents are also looking for ways to improve efficiency. They need to make up the dollars they’ve been losing over the past few years, and they need to make sure they’re being reimbursed every penny they’re owed.” 

	Reimbursements have becomes a particular challenge for resource-stretched independents, especially given rules surrounding Medicare payments. “For independents, the biggest pressure is from government. It holds Medicare reimbursements; sometimes for 30 or 45 days,” says Grigg. “There are challenges that we deal with on a regular basis. The Good Neighbor franchise program introduced in July provides coaching for pharmacies. We become expert eyes on their business, for financial as well as program matters,” he says. 

McKesson’s AccessHealth managed care division, which provides third-party contracting, holds some 9,000 contracts with more than 70 pharmacy benefit managers (PBM)s and a portfolio of Medicare Part D plans. 

Williams of Cardinal Health also puts reimbursement among the top needs expressed by independents. Focus groups have indicated that their evolving needs fall into four areas: reimbursement, streamlining operations, creating alternative revenue streams, and increasing patient market share. 

Although beset by less-than-friendly federal reimbursement policies, independent pharmacies are maintaining their viability for pharmaceutical delivery