E-Commerce Drug Delivery and the Role of U.S. Pharmaceutical DistributorsPharmaceutical Distributors Increase Focus on DTC E-Commerce and Home Delivery
Back to Basics: The Essential Role Pharma Distributors Play in Today’s Supply Chain
Did you know that pharmaceutical distributors handle 92% of the prescription drug products that flow through the secure ecosystem in the United States? Essential to the process, pharma distributors provide core services including product distribution, inventory management and the management of financial risk while minimizing costs.
Pharmaceutical and healthcare distributors purchase prescription drugs, medicinal products and medical supplies directly from manufacturers then store the inventory in warehouses and distribution centers. In doing so, they assume legal ownership of the pharmaceutical goods and are subject to FDA DSCSA regulations.
The three classes of prescription drug products used to manage patient care and conditions are:
Known by their brand names, these are drug products that still have active patents, exclusive rights allotted by the government to produce and market specific drug products. During the useful life of the drug patent, there can be no direct competitors for the respective drug product. 51% of the pharmacy sector’s revenue in 2017, $412 billion was due to the sale of branded pharmaceutical products.
Once a patent has expired, a drug may be produced by multiple companies as the originating drug manufacturer’s exclusive patent rights have ended. Generic drug products comprised 90% of total outpatient prescriptions that were dispensed in 2017, or 15% of the total revenue for the pharmacy industry.
Developed to treat specific medical conditions, specialty pharmaceuticals are high touch, high cost or highly complex drug products. These prescription drugs tend to be fragile, highly sensitive goods that require specialized handling, storage, transportation and dispensation to patients, often necessitating changes to supply chain logistics processes and cold chain monitoring technologies. Many, if not most, specialty drug products must be administered via injection or infusion. This fact can also alter distribution models.
Pharmaceutical distribution is significantly concentrated between three traditional full-line distributors: McKesson, Cardinal Health and AmerisourceBergen. As of 2017, specialty drug products comprised over 30% of full-line distributors’ revenues.
Consumerism of Prescription Drugs in America
Did you know that America is spending more than ever before on prescription drugs?
The significant growth in the use of specialty pharmaceuticals, high cost prescription drugs, are anticipated to comprise approximately 40% of total drug spend by 2020.
Why? One Reason is the Rise of Consumerism
Here is an example. You are watching tv and an ad comes up for a drug product that treats a prominent health condition such as psoriasis or rheumatoid arthritis. Patients often see these ads on a regular basis and become familiar with the drug and its claims. During doctor visits, patients often ask for these products specifically by their brand names.
Research has demonstrated that the incidence of direct-to-consumer advertising has increased and has led to more awareness of specific prescription drug products by consumers. 75% of physicians consulted in an industry survey indicated that they believe that DTC ads raise patients’ expectations of higher drug efficacy than occurs in reality. Doctors also reported that when patients mention DTC ads they feel “some pressure” to prescribe a medication. Overall, research indicates that DTC advertising has been responsible for a 12% increase in prescription drug sales.
Drug manufacturers today face a myriad of challenges from implementation of the FDA Drug Supply Chain to using technology to avoid drug shortages and minimize drug product expirations. Even with these debacles, the rise of consumerism probably presents the biggest challenge.
As defined by PwC, the healthcare consumerization trend is “the acknowledgement of the growing role of consumers and the need to develop strategies and market offerings that fulfill their needs and preferences and fully engage them in an end-to-end customer experience”. This important trend has caused the pharma industry to re-examine methodologies, necessitating new strategies for how fulfillment, shipping, delivery and distribution are accomplished.
No longer are pharma companies shipping goods in bulk exclusively to hospitals, pharmacies, wholesalers, distributors, 3PLs and others in the pharmaceutical supply chain. Now prescription drugs are shipped directly to consumer homes. Tracking individual packages of prescription drugs from a manufacturer and distribution to consumer homes can be challenging and requires the scanning of every single parcel. For this reason, many companies have already implemented or are planning to implement Internet of Things (IoT) devices, automation and robotics into fulfillment warehouse operations to speed up operations and help keep costs under control.
The alignment between the pharmaceutical and e-commerce industries is striking. Both industries are finding it challenging to fulfill higher volumes of orders, faster and more cost efficiently. The pharmaceutical industry has the added pressure of ensuring both patient satisfaction and FDA regulatory compliance. Both industries have experienced challenges in dealing with 3PL and warehouse operators using limited, outdated legacy warehouse management systems. Today, as the pharmaceutical industry moves towards a digital world, more companies are investing in leading edge technologies including pharma-specific warehouse management systems, Internet of Things (IoT) and Internet of Medical Things (IoMT).
Over the years, the pharmaceutical industry has paid less attention to the cost of shipping and logistics due to the higher cost of its goods. Shipping and logistics costs as a percentage of sales were very low, however this has been changing. As many patents of expensive, popular drugs have expired, the cost has decreased for specific medications. Across the biopharma industry, more companies are examining their logistics costs and trying to reduce delivery timeframes. Now that Amazon has acquired PillPack and is active in the pharma space, pressure has been building.
Consumer pressure and governmental focus on reducing the costs of prescription drugs has added more fuel to the fire. Companies across the pharmaceutical supply chain, including 3PLs have begun to concentrate on incorporating industry best practices into warehouse and supply chain operations to help control their own distribution processes. New distribution models are gaining momentum. Technology is starting to play a central role. Business intelligence is providing data for better strategic planning.
Pharmaceutical businesses have good reason to move to digital operations. Improved data, shipment, order, inventory and process visibility can produce vital savings. Use of mail order and specialty pharmacies can save over $311 billion over the next ten years for consumers, employers, unions and government plans. This is one of the easiest ways to decrease health care costs and it provides the added benefit of convenience to patients, both factors preferred by consumers.
Transitioning from warehousing, handling and shipping regulated pharmaceutical goods across the supply chain to patient homes requires picking and shipping smaller orders in much higher volume. This necessitates the manual scanning of every parcel, a labor-intensive process. Many pharma businesses are now incorporating IoT as well as robotics, automation and more material handling technologies into their fulfillment operations, changing their distribution strategies or outsourcing to 3PLs.
Many pharmacy benefit managers and other entities have incorporated direct to consumer ordering and delivery services. The convenience of prescription drug home delivery is especially valuable to homebound patients, the elderly (especially for those unable to drive) and those suffering with chronic health conditions.
Changing the distribution and delivery models requires more visibility between supply chain partners. Handling the order fulfillment and delivery of smaller, more personalized orders for patients means seamless communication and closer ties are needed between manufacturing and distribution.
Here are some of the other added benefits of prescription drug home delivery especially via mail-service pharmacies:
- Increases drug delivery safety and efficiency
- Can aid in enhancing patient adherence to drug therapy regimen
- Helps to minimize “waste” at drugstore pharmacies
- Often provides round-the-clock access to counseling and support
Rising adoption of specialty pharmaceuticals and consumers’ desire for convenience are two of the factors shaping new distribution and delivery models in the pharmaceutical industry. Today pharmaceutical distributors are innovating new ways to meet patient needs, ensure patient safety and safeguard costly drug products by using technological tools, new operational processes and pharma distribution models.