Secondary drug wholesalers are planning to file an injunction against the FDA to stop implementation of the Prescription Drug Marketing Act (PDMA) according to this story from Drug Industry Daily. See Drug Wholesalers Seeking Injunction to Stop Drug Tracking Program.
By way of background, the FDA lifted the stay on implementation for the PDMA in June. It is now scheduled to be implemented on December 1, 2006. See my blog posts in the Pedigree category for more background on the issue as well as the FDA's Draft Compliance Policy.
I suppose that this filing was inevitable because the PDMA's Authorized Distributor of Record (ADR) system creates a powerful market dynamic toward a one-step channel. The extra costs and burdens of a two-or-more step (non-ADR) channel have the potential to shift volume among wholesale market participants. Speculatively, I imagine at least three possible outcomes from the PDMA:
- Wholesalers with an ADR relationship will pick up volume. The large wholesalers (MCK, CAH, ABC) will pick up volume from secondary drug wholesalers as well as physician distributors. Many med-surg distributors have found themselves caught between an ADR and a hard place. These companies often stock pharmaceuticals as a convenience for their physician customers but have relatively small volumes of Rx product in their mix (maybe 5% to 10% of total sales). They are not primarily secondary drug wholesalers, so need to either be ADRs or receive pedigree from a major wholesaler. For example, PSS World Medical issued a press release announcing its intent to buy directly from manufacturers after HB371 passed in Florida. (See PSS' Press Release.)
- Manufacturers will broaden their ADR networks. Contrary to popular belief, most pharma companies have authorized distributors beyond the big 3. The top eight manufacturers average of 79 ADRs according to published lists that I reviewed over the summer.
- The marketplace will create a solution for pedigree. A third option would be to allow the marketplace to determine winners and losers. If customers truly demand to purchase from a secondary wholesaler, then we can expect manufacturers to require ADRs to service those wholesalers. A manufacturer could even compensate an ADR for fulfillment to secondary distributors, making ADRs into de facto master wholesalers and possibly creating another area of fee-for-service compensation for wholesalers.
Unfortunately, I have heard only limited understanding of the ADR issue in my conversations with trade relations executives at pharma companies. The FDA is apparently issuing a Q&A next week to clarify the situation. In the meantime, the filing of this injunction should serve as a channel strategy wake-up call to manufacturers that have so far ignored the December 1 PDMA implementation deadline.
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I have to go and get ready for trick-or-treating. I'm dressing up as something very scary -- a cute, cuddly teddy bear filled with counterfeit drugs! (See Items 7 and 10.) My kids are dressing up as RFID tags. Happy Halloween!
As it is presently written, the Final Rule creates two distinct classifications of wholesaler - 1.) those that are able to meet the purchasing requirements stipulated by the manufacturers and are classified as Authorized Distributors and 2) those that may or may not buy directly from the manufacturer but do not meet the requirements and are classified as Unauthorized Distributors. The law that will be in effective Dec. 1, 2006 requires a pedigree to be passed with each purchase if the product leaves the "normal chain of distribution". A pedigree is simply a document, either electronic or written, that follows the movement of the product detailing each transaction along the way. The definition of the "normal chain of distribution" is movement through a specific route - from the manufacturer to the AD to the end user (doctor's office, hospital, clinic). Any deviation of that flow of product requires a pedigree. Those with an AD status are exempt from the pedigree rule. They are not required to pass a pedigree based on the assumption that all purchases are made directly from the manufacturer. This equates to, approximately, 90% of all pharmaceuticals distributed in the United States. This exemption opens large holes in the pharmaceutical supply chain. It undermines the exact purpose of the pedigree laws - to preserve and control the integrity of the pharmaceutical supply chain. In essence 90% of the pharmaceuticals would now be exposed to the possibility of counterfeited and adulterated pharmaceuticals infiltrating the supply chain.
ReplyDeleteOther unforeseen consequences as a result of the implementation of the pedigree laws as they are currently written are:
1.) extinction of the small distributor
2.) decrease in state revenue
3.) increase in unemployment
4.) a "mini" monopoly will be created
5.) decreased competition
6.) increase in drug prices due to additional and complex paperwork
requirements
7.) certain markets would be underserved
8.) critical care/emergency drugs could not be obtained in a timely manor
with limited purchasing options
9.) prices on medications purchased by physicians would increase
10.) medical insurance premiums would increase
11.) tax increases in order to cover Medicare costs
As an additional matter, distributors are finding it difficult to deplete inventory, bought lawfully and properly, with full pedigree back to the ADR, by the December 1st deadline. Unless the FDA indicates enforcement discretion with regard to distributors’ pre-existing inventory for a reasonable period of time, wholesalers will suffer huge losses, some of a magnitude that could put many out of business. This would further compound the negative effects this rule will have on our customers and their patients.
I support Congress's move to implement a federal pedigree program. That said, in an effort to ensure that all drugs and medical products get to all the providers and patients that need them, the definition of 'normal distribution' needs to be thoughtfully revised, or the law needs to be the same for all distributors, with no favoritism shown.
What is needed now is a stay to December 1, 2008 so that the law can be revised to correct its unintended consequences.