Pharmaceutical Supply Chains Are Due for a Radical Overhaul Says PwC
New Report Outlines Six Trends That Will Change the Way Drugs are Manufactured and Distributed
NEW YORK, Feb. 21, 2011 /PRNewswire/ — While recent attention has focused on issues such as the challenges associated with drug discovery and the regulatory review process, pharmaceutical companies have invested comparatively little effort in updating their manufacturing and distribution operations, many of which are inefficient, under-utilized and ill-equipped to cope with new medicines, cost pressures and health reform expectations, according to the latest report in the Pharma 2020 series, Supplying the Future: Which path will you take?, released today by PwC US.
Representing a significant amount of the cost base of most bio-pharmaceutical companies, the supply chain is the link between the laboratory and the marketplace and includes everything from sourcing raw materials to manufacturing and packaging to inventory warehousing, transportation and distribution. As demand grows for more customized products and services — and as the nature of those products and services becomes more complex — the next generation pharmaceutical supply chains will become an increasingly important source of differentiation for makers of medicines, and will be a more prominent part in the strategic thinking of industry leaders, according to PwC.
In the report, PwC outlines six trends that will fundamentally change the way pharmaceutical companies make and distribute their products.
Health reform shifts emphasis from product features to patient outcomes: The government’s emphasis on health outcomes as a basis for payments will require pharmaceutical companies to not only manage the manufacturing and distribution of medicines and companion diagnostics, but also to combine product offerings with data and supplemental services that add value through improved outcomes and efficiencies.
New products types: The growth of biologics, bioengineered vaccines and advancements such as stem cell research and nanotechnology are diversifying pharma’s portfolio with products that have a shorter shelf life and require more complex manufacturing and distribution processes than shelf-stable pills and conventional medicines.
Incremental product launch alters the sales curve: Both the U.S. Food and Drug Administration (FDA) and the European Medicines Agency (EMA) have shown interest in limited label approvals, granting “live licenses” contingent on ongoing testing versus the all-or-nothing phase I through IV approach. Current processes support revenue projections for “big bang” product launches, with peak sales upfront. Pharma companies will need more adaptable cost structures that preserve gross margins at each stage of the product lifecycle.
New modes of healthcare delivery: Greater use of electronic health records, e-prescribing, mobile health applications and remote monitoring are moving healthcare delivery, including medication management, beyond hospitals and physicians offices into homes, communities and direct to patients. Pharmaceutical companies will need real-time information to manage wider distribution networks and demand-driven manufacturing and distribution processes.
Growing importance of emerging markets: The growing importance of the emerging markets will require pharmaceutical companies to understand patient needs and preferences in the developing world and modify cost and design of product offerings and services accordingly.
Greater public scrutiny: Globalization, the foreign sourcing and manufacture of regulated products, and an increase in the volume and complexity of imported products have increased the need for supply chain control to identify the risk of contamination and fake medicines. Regulators are raising the bar on supply chain safety, demanding sophisticated technology solutions to track and trace product throughout the supply chain.
“The current pharmaceutical supply chain worked well when the ‘blockbuster’ paradigm prevailed, but pharma’s focus in a post-health reform world is shifting from products to patients, and their supply chain processes need to adopt the speed and agility of other, more consumer-oriented industries such as consumer electronics and mass retailing,” said Wynn Bailey, head of supply chain strategies, PwC. “In a world where outcomes count for everything, health organizations need to acquire a much deeper understanding of patients and their healthcare needs. Information is the new currency, and the data behind the product may soon be as valuable as the product itself.”
PwC predicts that the pharmaceutical supply chain will undergo three key changes over the next decade. It will become fragmented, with different models for different product types and patient segments; It will become a means of market differentiation and source of economic value; and It will become a two-way street, with information flowing upstream to drive the downstream flow of products and services, and the management of information transferred between the pharma company, the patient and healthcare provider will become as important as the movement of product.
“The most successful pharma companies will be those that recognize the underlying value locked in their supply chain and can leverage it as a value and brand differentiator rather than just a cost,” said Steve Arlington, global advisory pharmaceutical and life sciences leader, PwC. “Companies that recognize information is the currency of the future, will be those that go the final mile and stand out by 2020.”
In its report, PwC outlines four potential scenarios that pharmaceutical companies might explore as a way to restructure their supply chains. Depending on their product and channel portfolio, most companies will have to manage to more than one scenario simultaneously.
Companies that concentrate on specialist therapies might exit from manufacturing altogether and, instead, become a virtual manufacturer, outsourcing the entire supply from production of the earliest clinical batches to full-scale manufacturing, packaging and distribution through a network of integrated supply partners. Alternatively, they might position themselves as service innovators, building supply chains that are capable of manufacturing and distributing complex treatments as well as managing multiple suppliers of integrated, valued-added health management services.
Mass-market manufacturers, such as the makers of generic drugs, might position themselves as high-volume, low-cost providers, borrowing lessons in lean manufacturing, strategic pricing and inventory management from the consumer products industry. Another option for mass mass-market manufacturers is to turn their supply chains into profit centers that combine economic manufacturing and distribution of satellite services, such as direct-to-patient delivery, secondary packaging or distribution to hospitals and pharmacies, and then to franchise it as a stand-alone offering for both internal and external customers.
The findings of the report
The findings of the report
* Thirty (30) pharmacies or 57 per cent of the pharmacies charged higher prices for the same brand and same quantity of medication. In some cases overcharge is by 460 per cent despite PIB regulations allowing a maximum mark-up of 35 per cent on prescription drugs with a dispensing fee of 45 cents. 30 tablets of Microlab were sold by Nadi Chemist for $0.80 where as Midway Pharmacy- Ba & Chovhan Pharmacy Ltd-Lautoka sold same tablet in same quantity for $4.65.
* Forty three (43) pharmacies chose to dispense originator brands for one or more items even though generics are widely available. Thus, a $15.00 prescription ended up costing the customer up to $44.00, which is three times more or three months supply of medicines. Twelve pharmacies charged more than $30.00 while Hyperchem Pharmacy, Lautoka; Thakorlal’s Pharmacy, Nadi and Western Medicare Pharmacy, Ba charged more than $40.00 for the prescribed medicine. These are unreasonable profits that are being made at the expense of the patients. While not breaching any law, these pharmacies have shown gross negligence and complete breach of trust placed on them by ordinary consumers by dispensing originator brands without first consulting the patients.
* A comparison made for those pharmacies selling 6 generics and 1 originator brand Minidiab (glipizide) revealed that the highest price for all 7 medicines was charged by Chovhan Pharmacy Lautoka at $31.00, while Guardian Angel Pharmacy, Laucala Beach had the lowest price of $15.35. The percentage price difference between the lowest and highest for this group was 102 per cent which means double the price for the same set of medicine or a consumer in Lautoka paid $15.65 more to buy the same set of medicines as compared to a consumer in Suva.
* Only three (3) pharmacies dispensed all 7 generic medicines listed in the prescription. Amongst the ‘All Generics’ Group’, the Health Care Chemist in Tavua charged a higher price of $30.70 while Nadi Chemist charged $13.45 for all 7 generic medication. A consumer paid $17.25 more for the same medicine. This is a case of generic medication being sold at a price of originator brand drugs to unsuspecting consumers. Interestingly, 36 pharmacies who sold either one or more originator medicine had a lower total pack price than Health Care Chemist in Tavua.
* Thakorlal’s Pharmacy in Lautoka dispensed wrong dosage of medicine. Instead of 10mg (as per the prescription), the pharmacist dispensed 5mg without informing the patient. Similarly, Sugar City Pharmacy, Lautoka issued 15 capsules of Amoxillin instead of 9 or 10 for eight hourly course.
* Three pharmacies sold generic medication labelled as originator brand and also charged originator brand price. Thakorlal Pharmacy in Nadi, Wyse Pharmacy in Nakasi and Northern Drug Store in Labasa dispensed generic Frusemide-Apo but labelled it as laxis which is a originator brand tablet and also charged the price of Laxis ($4.65) which is much more expensive than generic Apo ($1.35).
* Some pharmacies with same ownership sold same medicine (brand, dosage & batch number) at different prices. For example, Superdrug Nabua charged $0.80 more on the same batch of Minidiab glipizide than its Suva branch. Two pharmacies in Ba – Hyperchem and Midway had a 189% price difference for the same medicine Flaminopril enalapril (Flamingo Pharmaceuticals/#106)
* Nineteen (19) pharmacies violated labelling requirements in one way or another.
* None of the 47 pharmacies provided individual medicine names on their receipts. However, 32 pharmacies provided medicine price on their labels. Nineteen (19) pharmacies provided both itemised receipts using codes and prices on their labels. Out of the 32 pharmacies that provided prices on their labels, 15 did not provide itemised receipts.
* Three pharmacies (Sugar City Pharmacy, Lautoka; Chovhan Pharmacy, Lautoka and Patel Pharmacy, Sigatoka issued a receipt with no company name, no TIN number or company address. Madison Pharmacy, Suva gave a “chit” with company name and total price when a receipt was requested. In the Northern Division, Northern Drug Store, Labasa issued receipt from “My Chemist” instead of a receipt specifically for Northern Drug Store. Ownership is same for My Chemist and Northern Drug Store.
* 51% of the pharmacies made inquiries on the prescription and the patient, while 49% of the pharmaciess dispensed the drugs without any further clarification on the prescription.
* During the survey, none of the pharmacies asked whether the patient wanted generics or originator brand medications. The general rule amongst pharmacists is to dispense generic drugs when presented with a hospital prescription.
* Generally, the prices of medicines in the Western Division are higher than in Central and Northern Division. In the Central division, Superdrug Pharmacy, Suva and Central Pharmacy, Suva sold 7 medicines for $38.80 and $38.50 respectively.