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A contractual arrangement that could save time and money for brand owners
Fig. 1. Reading from right to left, a manufacturer sends product to the 3PL provider, who then manages the distribution and reimbursement process while accepting orders from hospitals, medical practices and specialty pharmacies (SPRx) at the far left.
For pharmaceutical companies
launching new products, getting to market quickly is paramount. Yet, even after all of the FDA hurdles have been cleared, other challenges can delay a product launch. With the recent surge in merger and acquisition activity in the pharmaceutical sector, a growing number of companies are finding themselves with newly acquired products that are ready to launch—but without all of the state licenses that are necessary for distribution. Faced with the unpleasant prospect of waiting months to meet all of the state-by-state licensing requirements, some manufacturers are opting instead to accelerate their product launch through a third-party logistics (3PL) “Title Model” distribution solution.
Changing state license requirements
Today, approximately 45 states require that a pharmaceutical manufacturer’s facility acquire a license to distribute a prescription drug product within or into the state. In addition, there are currently several states where the application process for distributing a product cannot begin until after the product is approved by FDA, meaning that even under ideal conditions, it could be months after approval before the product can be legally shipped to those states.
These manufacturer licensing requirements can pose a substantial challenge to pharmaceutical companies that have limited in-house resources to manage regulatory affairs and licensing. The time required to acquire all of the necessary licenses could be three to eight months, and the delay to launch could translate into significant lost revenue. These delays can also create a window of time for competitive products to enter the market and gain share.
The Drug Supply Chain Security Act (DSCSA) is creating even more uncertainty in the area of manufacturer licensing. While the DSCSA preempts states from licensing manufacturers as wholesale distributors, states are still allowed to license manufacturers in their own category (versus as a subset of the wholesale distributor category). FDA is expected to publish regulations on wholesale distribution licensing in the near term, and after they do, states will begin amending their laws and regulations to match FDA regulations. As that process gets underway, states may elect to make further changes to their manufacturer licensing processes. With these potential changes on the horizon, manufacturers could face additional delays in acquiring certain state licenses.
Using Title Model to accelerate product launch
Given the significant advantages that come with launching quickly, it is no surprise that pharmaceutical companies are looking for innovative ways to accelerate their launch timeline. One solution that has gained traction is the 3PL Title Model, an exclusive distribution model in which a 3PL provider takes title of the product and handles warehousing, distribution and order-to-cash management on behalf of the manufacturer for a period of time, allowing the manufacturer to leverage the 3PL provider’s existing state licenses.
At its core, the Title Model is very similar to a traditional 3PL distribution model. In both, the 3PL provider partners with the manufacturer to distribute to their customers, which can include physician offices, hospitals, specialty pharmacies, specialty distributors and wholesalers. The 3PL provider handles all aspects of order-to-cash management, including branded customer service, branded invoicing, managing accounts receivables (A/R) and bad debt, and handling product returns on behalf of the manufacturer (Fig. 1).
The primary difference in the Title Model program is that the 3PL provider purchases and takes title of the product, enabling the manufacturer to utilize the 3PL provider’s state licenses to distribute to sites of care nationwide. This can potentially accelerate the product launch date by months, or even up to a year.
Management of accounts receivables (A/R) is also a key advantage of the model. Under the Title Model, the 3PL provider manages all aspects of invoicing, collecting payment and managing bad debt risk—and because the 3PL provider owns the product, they also own the A/R risk. In addition to mitigating risk for the manufacturer, outsourcing to dedicated experts can drive greater efficiency in the A/R and collections process.
In addition, unlike exclusive distribution programs offered through wholesalers, the Title Model is a manufacturer-branded program, enabling the manufacturer to remain at the center of the customer interaction through branded invoices, customer service phone lines, and web portals for order management. This arrangement allows the manufacturers’ brand marketing teams to control the message and information flow as well as positioning to their customers.
Another unique aspect of the model is inventory management. Under a traditional 3PL model, the 3PL provider keeps approximately six months of product in inventory, but under the Title Model, the 3PL provider purchases product from the manufacturer “just in time” to fulfill orders as they come in. This “just in time” model is not only more efficient, it results in a lower rate of returned goods—about .5% vs. 1—2%—because the product is less likely to expire while in inventory. However, manufacturers can still opt to hold additional product inventory on consignment at the 3PL provider’s facility. While the price of Title Model services may be moderately higher than traditional 3PL to reflect the more extensive range of services, in aggregate manufacturers often spend less because they are not building the capabilities in-house.
Advantages of Title Model in the long term
While Title Model is an attractive short-term option for companies looking to get to market quickly, it is also a popular long-term distribution solution for pharmaceutical manufacturers that want greater control over their supply chain, but lack the infrastructure to manage it internally. In particular, smaller manufacturers with specialized products, and complex storage and handling requirements (such as refrigeration), or risk evaluation and mitigation strategy (REMS) requirements, may find that managing the supply chain process puts unwarranted strain on their business. Outsourcing the entire process to a 3PL provider can deliver financial advantages and free the manufacturer to focus on their core business of developing and commercializing products, while improving cash flow.
What to look for in a Title Model partner
For pharmaceutical manufacturers that are considering a 3PL Title Model program—either as a short-term solution for getting to market or as a long-term distribution solution—there are a few questions they should consider.
Does the partner provide real-time data?
The ability to see real-time distribution, customer service and order-to-cash data is critical to commercial strategy. The Title Model partner should provide versatile, real-time data using flexible reporting tools. In addition, if the manufacturer is engaging related services, such as patient reimbursement support, patient assistance programs or a specialty pharmacy dispensing program, they should find a partner with the ability to integrate all of the related data in a single report with customized views.
Does the partner have regulatory expertise?
With the regulatory landscape evolving so rapidly, manufacturers should seek a partner with expertise in regulatory issues affecting distribution. In addition to having experts in product serialization and state licensing, the Title Model partner should have strong relationships with regulatory agencies such as FDA and the DEA, and extensive knowledge of Current Good Manufacturing Practice (cGMP) regulations. Importantly, the 3PL provider also should have the technology and systems in place to verify that the product has been handled compliantly throughout the chain of custody, and ISO certification. Finally, the manufacturer should confirm that data will be protected in an FDA validated systems environment and firewalled from the 3PL provider’s other lines of business.
Does the partner have redundant locations to ensure business continuity?
Even the most reliable supply chains can sometimes be disrupted by severe weather and other “acts of God.” When interruptions occur, they not only cause financial hardships, but can put patients at risk. Partnering with a 3PL provider that has redundant distribution and order-to-cash locations can help prevent a costly disruption in service.
Does the partner have a strong customer service focus?
The Title Model partner will not simply be warehousing and distributing the pharmaceutical product; they will be representing the brand and interacting with customers—so it is important for the manufacturer to select a partner with a focus on delivering an exceptional customer experience. Decision-makers should ask the partner what key performance indicators they use to track customer satisfaction and how they report these metrics, so there is clear visibility into the performance of the customer service team.
As the competitive marketplace continues to create pressure to launch products quickly, pharmaceutical manufacturers will increasingly seek solutions like the Title Model that deliver speed and efficiency. However, the successful implementation of these programs will depend on the experience and capability of the 3PL provider, and the commitment between the manufacturer and their partner to delivering a high-quality, data-driven, customer-centric distribution experience.
ABOUT THE AUTHOR
Jennifer Fillman is vice president/general manager of Cardinal Health Specialty Solutions and leads the company’s 3PL and Distribution Services unit. Cardinal Health has been delivering Title Model programs to clients for years and recently introduced the Accelerated Launch Title Model for manufacturers seeking a short-term distribution solution.