ESC™ Benefits Specific to Pharmaceutical Manufacturers

State Pedigree Compliance

Beginning with California and its January 1, 2009 deadline, states are moving to mandate the serialization and tracking of all pharmaceuticals moving in within its borders. California has mandated that prescription drug packaging, starting at the unit-of-sale level, must be marked with unique serial numbers. Furthermore, it requires that an electronic pedigree for pharmaceutical packages be created by the manufacturer then maintained and communicated throughout the supply chain to the retail level.

SSI's ESC™ system offers 100% compliance with California's impending 2009 regulation. Each unit-of-sale, as well as each level of aggregation, is serialized. An electronic pedigree is created once a serialized shipment is sent from the packaging facility to the manufacturer's downstream distribution point.

Secure Symbology monitors all existing and pending state pedigree legislative efforts, and is an active member of such discussions. The unique method of storing and retrieving the hashed serialized data from its DataVault provides the flexibility to adapt data seamlessly to the myriad of differences in specific requirements brought forth by any state's regulations or regulatory agency.

Protecting the brand, as well as protecting the consumer, extends beyond movement within the supply chain via serialization and electronic pedigrees. Ideally, a mechanism should be in place to authenticate the packaging of a given pharmaceutical product beyond its distribution including physicians, consumers, and retail dispensers.

ESC™ provides the manufacturer's constituency with such a brand protection mechanism. By also embedding a human readable random security code into the serialized barcode, Secure Symbology or its partners can offer an authentication service, via the web or phone, to validate a particular item.

Quite simply, Brand Protection gives consumers a feeling of confidence and thwarts the efforts of counterfeiters.

Serializing packages and tracking individual items through the supply chain create efficiencies in such areas as targeted recalls, returns validation, and chargeback reconciliation.

In today's supply chain, when a product is recalled (by lot number or otherwise), it is often difficult to determine where the affected product is located. As such, recalls are usually blanket recalls, where the entire product is pulled from active inventory throughout the supply chain. In a serialized environment, recalled products can proactively be located by querying the EPCglobal network, as well as reactively located by providing a website for consumers to check and report recalled medicine.

Returns are often difficult to verify and authorize, due to the lack of serialization. Companies handle returns by trying to match quantity sold to quantity returned. This entails managing an array of EDI forms. Even if the quantity returned matches the quantity sold, there is no mechanism for proving that the product returned is the same product that was sold, and whether or not the product is authentic. Serialization solves both problems by matching the serial numbers returned to the serial numbers sold, and by validating the authenticity of the serial numbers.

The current chargeback system has been described as the “leaky channel” of the supply chain. Just as in returns, there is no available mechanism for reconciling chargebacks. Furthermore, there is no method to flag an individual package as being charged-back, as there is no way to individually identify packages. Once again, serialization solves this critical issue.

Recall Management

With the combination of a serialization database and EPCIS-based tracking services, it is possible to avoid blanket recalls by locating recalled products. Recalled products can be located by lot number, by the specific packaging line, by range of serial numbers, etc.

The manufacturer can alert the appropriate parties, and solely the appropriate parties, about the need to recall drugs. Aside from the obvious savings of not having to do a general recall, the manufacturer significantly reduces its overall liability. Consumers directed by manufacturers to recall drugs will further go to reduce product liability. Additionally, the manufacturer's own database would contain information on the origin of certain offending raw materials if that were the ultimate cause of the recall.

Diversion Detection

Manufacturers can leverage the EPCglobal network to determine if its products have entered unintended channels. This is the function of the Diversion Detection module.

Diversion has created a robust cottage industry even among legitimate distributors. Diversion presents an enormous cost to the industry tremendously affecting manufacturers' gross margins. Even a reduction of diverted goods of 1%, because of the large gross margins enjoyed by the pharmaceutical manufacturers, represents a disproportionately large savings in and impact to the bottom line.

Returns Processing

The Returns Processing module interfaces with EDI forms 852, 850 and 867. The transactions in these inventory systems attempt to track inventory at the wholesaler distribution level and sales to the pharmacy or clinic level.  They also include incoming purchase orders from wholesalers.  The information included in these systems should allow the ability to see products at warehouse, retail and institutional outlet levels which in turn would provide information on order history, days on hand inventory and sales and returns.

The traditional EDI system is fairly inefficient due to irregularities in reporting and anomalies can only be clarified through unit level track and trace. Returns have been estimated at 3-5% of all drugs shipped. Even marginal reduction of returns can have an enormous impact on profitability.

Chargeback Reconciliation

From Pharmaceutical Commerce, April, 2007

“According to Health Industry, manufacturers currently spend up to 4% of cost of goods sold (COGS) on non-value-add distribution functions like returns and reverse logistics (see also Pharmaceutical Commerce, March, p. 27); this money is spent knowingly for necessary customer support. Survey respondents, to the extent that they can estimate non-recorded lost revenues, believe that their unaccounted costs range from less than 1% to 20% or more; the mean percentage lost is 4.53%.

There are five critical areas in the chargebacks/returns processes where revenue can be lost:

• Chargeback discrepancies, where there are differences between quantities shipped, quantities sold and chargebacks applied for;



• Duplicate chargebacks, where product has been sold with a chargeback, is returned to a wholesaler, then sold again generating a new chargeback;



• Omitted reverse chargebacks, where a refund should have been generated but wasn't;



• Return discrepancies, where it is hard to account for the appropriate original pricing of a returned product



• Concealed shortages, caused by overstating return quantity, or understating original volume shipped.

Current IT tools address many of these problems, but the difficulties remain in physically handling returned product, or manually reconciling origin shipments with chargebacks. A resounding 83% of survey respondents believe that their current reconciliation-software capabilities could be improved. Making more extensive use of EDI Forms 852 and 867 are a pathway forward; ultimately, item-level tracking will provide an exact reconciliation capability , provided its use is widespread and agreed-on reporting mechanisms are developed.”

SSI's Chargeback Module combines serialized tracking and the manufacturer's ERP system to provide a highly efficient and effective mechanism for tracking and reconciling chargebacks.