Pharma’s Bitter Pill

By Elizabeth Wasserman

The pharmaceuticals industry will adopt track-and-trace technologies—likely including RFID—to shore up its ailing supply chain. But the cure could be hard to swallow unless business benefits, not regulations, pave the way.

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On March 25, the pharmaceuticals industry—drug manufacturers, distributors and pharmacies—breathed a collective deep sigh of relief. That’s because the California State Board of Pharmacy issued a decision to delay implementation of its drug-pedigree law, which would have required that companies maintain electronic records for all medicines sold in the state as of Jan. 1, 2009. The goal was to make sure that counterfeit medicines would not enter the supply chain and better protect patients.

It’s a goal shared by the pharmaceuticals industry, the U.S. federal and state governments, even European companies and governments—but that’s where the consensus ends. No one can agree on what technology to use—2-D bar codes, RFID or both. There’s also disagreement on when and how to collect data for pedigrees—documents that verify the chain of custody of drugs as they move through the supply chain. Unlike California, Florida, which also passed a pedigree law, doesn’t require electronic pedigrees. And while California says its e-pedigrees must originate with manufacturers, Florida requires pedigrees to start with distributors. Nevada and Virginia also have e-pedigree systems on a limited scale.

Then there’s that sticky question of cost. In June, the National Community Pharmacists Association, in conjunction with the National Association of Chain Drug Stores, issued a study by Accenture that found it would cost individual pharmacies $84,000 to $110,000 to implement a track-and-trace system that uses 2-D bar codes and both high-frequency and ultrahigh-frequency RFID, the three technologies the industry is currently exploring. While the study didn’t address distributors, companies that break down large shipments from manufacturers into smaller shipments to pharmacies would face similar costs.

And let’s not forget the issue of adoption. In its March 25 decision, the California State Board of Pharmacy said that a large percentage of industry members would simply be unable to meet the 2009 deadline.

Some manufacturers whose drugs have been the target of counterfeiters—such as Pfizer, maker of the erectile dysfunction drug Viagra, and Purdue Pharma, maker of the prescription painkiller OxyContin—have undertaken large-scale trials to track every bottle with RFID tags. Cardinal Health, H.D. Smith, McKesson and other drug distributors also have deployed RFID to track counterfeit-vulnerable drugs distributed to pharmacies across the United States. And Wal-Mart, which has pharmacies within its stores, sent a letter to suppliers to begin to address the issues necessary to meet California’s deadline.

But many companies—not sure which technology to adopt, or how to comply with multiple requirements from different states—have taken a wait-and-see attitude. A survey last year by Health Industry Insights, an IDC company, found that only 16 percent of drug manufacturers and distributors were evaluating RFID benefits—and 75 percent of those companies undertaking studies were budgeting $50,000 or less to implement RFID. The survey found that only 3 percent were adopting RFID solutions and allocating multimillion-dollar budgets to the technology.

California’s decision to delay the implementation of e-pedigree legislation gives the pharmaceuticals industry some breathing room. Meanwhile, the U.S. Food and Drug Administration has a deadline of March 2010 to effect a pedigree system that would protect the pharmaceutical supply chain. The FDA is considering all solutions, but it shows a strong interest in using RFID to implement a reliable track-and-trace solution.

Many industry stakeholders would welcome a federal mandate. “From our perspective, our companies are national in scope, and that means they do business across all 50 states,” says Amanda Forster, senior director of communications for the Healthcare Distribution Management Association, which represents drug distributors. “Having to comply with potentially 50 different regulations does pose a challenge…. We think uniformity in this area is pretty important.”

But enforcing even a federal mandate could be difficult, says Doug Farry, managing director of the government affairs practice and chair of the RFID practice at international law firm McKenna Long & Aldridge. Regardless of what technology is chosen, Farry asks, how will policies be enforced? In particular, he says, is the issue of who will be liable if a counterfeit drug is found in the supply chain.

RFID proponents say business benefits—not compliance with regulations—are needed to convince pharmaceutical companies to adopt e-pedigrees, and using RFID in the supply chain can provide those benefits. In addition to preventing counterfeit drugs from entering the supply chain, which can cost companies billions of dollars in lost sales and threaten patient safety, benefits include inventory visibility, order accuracy, proof of delivery upon receipt, and efficiencies in executing drug recalls.

“We have a customer who received a recall notice from a manufacturer,” says Peter Spellman, senior VP of products and software-as-a-service for e-pedigree supplier SupplyScape. “By asking the pedigree system, they knew, first, if they ever had the product—the answer was yes. They knew exactly how much they got, where it was, whether it was in the warehouse or shipped to a customer, and which customers it was sent to.”

Beyond Compliance

Now that the California e-pedigree requirement has been put off, analysts say it’s time for the RFID industry to turn its attention to making a better business case for RFID to pharmaceutical companies. “Some of the benefits are similar to things we often cite in other industries, around inventory visibility across the supply chain, order accuracy or proof of delivery upon receipt,” says Paul Schmidt, RFID lead at Accenture.

With RFID, supply-chain partners would be able to identify the exact location of products at any given time. Pharmacies would be able to know when to replenish stock. Hospitals that use RFID-enabled smart-shelf technologies could have stock reordered automatically. Manufacturers, distributors and pharmacies would have electronic verification of receipt of deliveries to confirm payments. And by including expiration dates on RFID tags, manufacturers, distributors and pharmacies could make best use of their supplies, distributing batches closest to expiring first.

There are also internal benefits specific to the industry. Drug manufacturers, for example, could use RFID to reconcile rebates and coupons they give to doctors’ offices, distributors and retailers that provide them with free samples and drug discounts. “It’s an extremely manual process that involves millions of dollars in this country,” says Jim Sabogal, VP and head of the life sciences industry business unit at SAP. “Right now, they’re blindly paying back retailers millions of dollars.”

Still other companies are finding innovative uses for RFID and piloting solutions that could save them millions of dollars. For example, Roche Diagnostics has partnered with logistics company DHL to use RFID in conjunction with sensor technology to help track pharmaceuticals that need to be refrigerated at certain temperatures. And cold-chain tracking is not only for transport. Hospital pharmacies often have to abide by regulations to monitor refrigerated drug supplies and record temperatures several times a day—most of which is currently done manually. AeroScout offers a solution that ties temperature monitoring to the hospital’s Wi-Fi system and enables automatic reporting to meet regulatory requirements.

Golden State Medical Supply (GSMS), a small contract pharmaceutical manufacturer and distributor based in Camarillo, Calif., is one company that doesn’t have to be convinced of RFID’s benefits. While compliance with California’s e-pedigree regulation was the main reason GSMS invested in RFID technology earlier this year, the company had other motives as well. GSMS, which repackages drugs from manufacturers for drug distributors and pharmacies in all 50 states, saw a potential internal return on investment in using RFID to keep track of inventory and better manage its warehouse. Having worked with IBM to implement the solution, GSMS also hopes to offer a new line of services to other pharmaceutical companies to RFID-tag their supplies and initiate the e-pedigree.

“From our standpoint, RFID will help us in terms of being able to keep track of everything that comes in, as our product is repackaged in so many special sizes to meet our customer needs,” says Jim Stroud, GSMS president and CEO. “Once we get it all down pat, the movement around the warehouse and inventories will be fully trackable. The whole distribution center will be maintained easier.”

The Technology Landscape

Unfortunately, several factors, including costs and a lack of standardization, are hampering RFID adoption in the pharmaceuticals industry. Drug manufacturers, distributors and retailers are divided on whether HF or UHF RFID technology would be better to track prescription drugs. “We really need a cohesive message if RFID is going to present a significant challenge to 2-D bar-code technology,” says Michael Liard, research director of RFID and contactless at ABI Research.

Pfizer, for example, has been using HF technology at the item level to track Viagra shipments since December 2005. A report from Pfizer last year called the continuing pilot a “success story” and pointed out that it had achieved 100 percent accurate readings on millions of RFID-enabled units. Proponents say HF provides more accurate readings at close range, arguing that longer-range read rates could potentially compromise patient privacy or make highly valuable drugs easier targets of theft.

Purdue Pharma and others favor UHF’s longer read ranges and the better read rates achieved when tagged vials in cases are packed closely together. In preparation to meet California’s e-pedigree requirement, distributor Cardinal Health spent months testing various forms of RFID to track items, cases and pallets of drugs. Those tests led the company to determine that EPC (Electronic Product Code) Gen 2 UHF tags were optimal for its operation, achieving read rates as high as 99.9 percent when tagged items were packed in cases moving down a conveyor belt at 60 feet per minute.

In addition, retailers such as Wal-Mart that are already using UHF EPC technology to track goods may not want to deploy an HF infrastructure to track drugs in their pharmacies. While Wal-Mart did not designate the use of UHF EPC tags in its letter to drug suppliers about complying with California’s e-pedigree requirement, the retailer did ask to be informed if suppliers planned to use a different technology.

Even if the industry reaches a consensus on which RFID technology to use, many see RFID as too costly a solution for item-level tracking. Bar codes are less expensive, and many companies already have infrastructures and processes in place that rely on bar codes. Others say bar-code technology is too time-consuming and labor-intensive, since bar codes have to be hand-scanned on every item upon arrival, during repackaging, and upon departure to pharmacies, hospitals or other distribution points. And bar codes are more easily copied and counterfeited.

Over the long term, RFID is seen as more efficient than 2-D bar-code technology to help the pharmaceuticals industry secure its supply chain, meet compliance obligations and provide internal benefits for companies. “The advantage of RFID is that it carries a lot of information that can be captured with non-line-of-sight visibility,” Liard says. “It’s still a manual process scanning a 2-D bar code.”

But some in the industry recognize that a blend of RFID and 2-D bar coding may be needed to meet compliance initiatives until RFID costs come down. “For the short term, what I see is a hybrid approach of 2-D bar codes at the item level and RFID and bar codes at the case and pallet level,” says Accenture’s Schmidt. “If you have hundreds of millions of units, RFID labels—depending on the volume—can still be 25 to 75 cents each. If prices come down, RFID definitely would be a more viable alternative.”

A hybrid solution also seems to be the option favored in Europe. “I believe over here in Europe the pharmaceuticals industry is saying it’s a little early for RFID at the item level,” says John Jenkins, coordinator of a wide-ranging European pharmaceuticals pilot for the European Union-funded BRIDGE project that deployed both RFID and 2-D bar-code technologies. “Manufacturers are concerned the costs are prohibitive. They’re often operating on a few cents’ margin and can’t afford to be paying 30 to 40 cents for an RFID tag.”

What’s Next

In the United States, the technology questions—RFID vs. 2-D bar codes, HF vs. UHF, hybrid solutions vs. one standard—could be settled by the FDA, which, according to an agency spokesperson, is now “reviewing the information to determine what standards are currently available, in the works, or still need to be developed.” What remains unclear is whether the FDA, which is under pressure from many different directions, will issue a clear and specific ruling that applies to all 50 states.

Even without an FDA mandate, the benefits of RFID tracking in the pharmaceuticals industry could make it the prevailing technology over the long term. But short of a regulatory endorsement, the switch to RFID may only come once prices drop to a point that will support putting tags on millions of item-level vials and plastic bins. Analysts say that could still be five years off.

In the near future, analysts believe we’re likely to see hybrid solutions. “I think there are going to be different use cases out there,” ABI’s Liard says, “We’re going to see a hybrid solution over here and a pure solution over there. You’ll see manufacturers try whatever makes the most economic sense.”

Whatever the FDA decides, Europe and other parts of the world may chart a different course. For example, France, Spain and Turkey are mandating the serialization of drug supplies—not pedigrees to track the exchange of drugs—that can be addressed easily with bar-code technology. Seriali­zation is the unique number applied to each vial or package of prescription drugs at the point of manufacture.

But different countries have different requirements for lengths of serialized numbers—anywhere from seven to 13 digits. Before RFID can be deployed throughout the global pharmaceutical supply chain, the industry has to work through standards bodies, such as GS1 and its subsidiary EPCglobal, to develop common standards for serialization. Among the numbering systems being considered are Global Trade Identification Numbers (GTINs), currently the basis for bar codes, and EPCs, which are used in conjunction with RFID.

While global pharmaceutical manufacturers are accustomed to packaging products differently to meet regulatory requirements in various countries—not to mention packaging products with labels in different languages—they want one solution to meet requirements for serialization and pedigree no matter where their products are sold. “Our goal is not to have a California product or a U.S. product, but to help companies that want to do this on a global basis,” says Chris Clauss, director of sensor information solutions for IBM. “I can make a drug in Ohio, but I might want to sell that in Florida, California, Turkey and Germany. Instead of segregating the product into several buckets for different companies, we can take a global approach to anti-counterfeiting, and a global approach to use cases for the electronic pedigree.”

Development of both standards and regulations could help drive adoption of RFID in pharmaceuticals. But perhaps the single best argument to pharmaceutical companies to get them to swallow the bitter pill of RFID is that they could realize both internal and external benefits that would ultimately outweigh the costs.

“In the future, we’d like to see the rest of the industry really take a strong look at the value proposition of the technology,” says Michael Celentano, associate director of supply-chain systems and RFID for Purdue Pharma. “Most of the benefits downstream will be recognized when more companies adopt the technology.”

A Trial of Two Technologies

RFID and 2-D bar codes are often seen as rivals for the eventual serialization and tracking of pharmaceuticals in the global supply chain. To test the rival technologies, the European Union-funded BRIDGE Project sponsored an eight-month Pharma Traceability Pilot, which ended in May, that used both technologies to track 19 pharmaceutical products from the point of manufacture to a large hospital pharmacy in London. But rather than determining a winning technology, the traceability pilot found that RFID and 2-D bar codes work well together as a tag team, says John Jenkins, coordinator of the pilot.

Coordinated by J.J. Associates, a U.K. business consultancy, the pilot tracked serialized “patient packs”—individually packaged capsules, pills or suspensions—with 2-D bar codes, and cases and pallets with both ultrahigh-frequency RFID and bar-code technology. It involved nine supply-chain participants: three drug manufacturers—Actavis, Athlone Laboratories and Sandos (a division of Novartis); pharmaceutical contract packager Tjoapack; wholesaler UniChem; logistics firms CPG Logistics and Movianto; hospital supplier Kent Pharmaceuticals; and the Barts and The London NHS Trust hospital.

During the trial, Athlone labeled packages itself, while the other drugmakers sent products to Netherlands-based Tjoapack, which repackaged them. Both Athlone and Tjoapack recorded product number, serial number, batch number and expiration date onto a 2-D bar code on each patient pack. Bar codes and RFID labels encoded with unique Electronic Product Codes were placed on cases and pallets.

As the products were shipped through the supply chain, the pallet and case labels were read; the bar codes had to be hand-scanned, while the RFID tags could be read automatically as the goods passed through portals. The data was entered into GS1 subsidiary EPCGlobal’s EPC Information System (EPCIS) database.

When products arrived at UniChem, they were broken down into packs and put on shelves. The hospital pharmacy sent daily orders, and UniChem picked products from its warehouse shelves and assembled a variety of products in a tote box. A new bar-code label was printed for the tote, listing the contents. The totes were loaded onto vans, which were identified by their own unique bar codes, and that information was entered into the EPCIS database.

When the bar codes were read at the hospital pharmacy, a complete chain of custody was documented. The pilot proved that EPCIS works satisfactorily in both RFID and 2-D bar-code environments. Since all the data was maintained on package, case and pallet labels, by reading the pallet label the supply-chain partners could see down to the item level. The data could be used by any of the supply-chain partners for e-pedigree compliance, inventory management, financial reconciliation or in the event of product recalls.

The pilot found that bar codes worked well at the item—or patient pack—level, while RFID provided faster tracking of goods at the case and pallet level, Jenkins says. And, he adds, RFID makes more sense for cases and pallets, which have a higher overall value than each individual item.