Pharmacy supply chain opportunities abound

January 8, 2007

Pharmacists who want to opt out of the traditional career path should keep an eye on Thomas Menighan in Gaithersburg, Md. The former pharmacy owner and onetime American Pharmacists Association president created a new specialty. His current company, SynTegra, audits drug manufacturers, wholesalers, and other links in the pharmaceutical supply chain.

Pharmacists who want to opt out of the traditional career path should keep an eye on Thomas Menighan in Gaithersburg, Md. The former pharmacy owner and onetime American Pharmacists Association president created a new specialty. His current company, SynTegra, audits drug manufacturers, wholesalers, and other links in the pharmaceutical supply chain.

SynTegra's original business plan targeted weak points in the supply chain where dubious products could be introduced as the real thing. But like most business plans, Menighan's initial efforts crumpled in the face of reality.

For as long as anyone could remember, wholesalers had bought pharmaceutical products from manufacturers to resell at a healthy profit. Profits were so high that wholesalers offered an ever-growing menu of free services to chains, independents, and institutional pharmacies.

But fat profits also encouraged business practices such as channel stuffing, sharply boosting purchases at the end of a quarter or fiscal year to inflate revenues and profits. Following a series of financial scandals in the 1990s, drugmakers started paying wholesalers to distribute their products.

Wholesalers, in turn, began trimming the free services offered to dispensers. Supply chain audits were still needed, but drugmakers and wholesalers alike were more focused on contract performance and the operations. In the fee-for-service world, compliance with contract terms is vital to continued profits.

"An audit to review your operational measures and regulatory compliance is a very useful exercise," said Christopher Smith, executive VP and COO of wholesaler H.D. Smith. "One of the biggest issues is ensuring that you have consistent procedures and policies from distribution center to distribution center while making sure that all of your distribution centers meet appropriate state requirements. We're all familiar with financial audits, but these operational audits are new to the industry. It can be a very educational experience."

SynTegra works almost exclusively for drugmakers. In general, Menighan said, manufacturers want assurances that wholesalers are adhering to the terms of distribution contracts. That includes such matters as tracking temperature during shipment and storage as well as service targets and delivery guarantees.

Tracking products from manufacturer through wholesalers to pharmacy buyers also helps ensure that products moving through the supply chain are legitimate.

Stricter product-handling procedures and tighter service requirements have already reduced the opportunity to introduce counterfeits into the supply chain, Smith said. Great attention to the supply chain has also reduced opportunities for product diversion. Both changes are good for industry and for patient safety, he said.

Menighan said product integrity is likely to become a more explicit audit goal as more manufacturers incorporate lot numbers and other tracking data in product bar codes and, eventually, radio frequency identification programs. About 80% of SynTegra's audits currently focus on contract terms, he added. The other 20% are directly related to security. Auditors focus on clandestine markings to verify legitimate packaging, tracking lot numbers and analyzing sales data to spot questionable transactions.

"As a pharmacist, I'm frustrated with manufacturers' nonpharmacy-friendly policies," said Menighan. "But as an auditor, I recognize that manufacturers will defend the integrity of their products to the death."

Wholesalers are just as terrified of bogus pharmaceuticals. Menighan said SynTegra has audited the three major wholesalers as well as the major regional operators and three of the larger secondary wholesalers. The secondary wholesalers had an aggressive authentication program, he reported. Product that could not be authenticated was either quarantined or returned to the source, not moved into distribution.

"Smaller wholesalers in particular realize that if any counterfeit product is found on their shelves, they're out of business," Menighan said. "They take that threat very seriously."