HIV Data Leak Spurs Security Restructuring at Drugmaker - 'ZIFFPAGE TITLERegulators Seek '

Regulators Seek 'Pedigree'

The volatility and importance of these products has the Food and Drug Administration and the California Legislature mandating that pharmaceutical manufacturers and distributors find better ways to track and trace drugs throughout the supply chain.

By January 2007, the FDA and California will require companies to create an electronic "pedigree" of all pharmaceutical products they make and sell, with documentation of who has handled a particular unit of a drug on its travels through the supply chain.

But Coates and his nine-person information-technology staff were one step ahead of the regulators. In June, they announced the completion of their own system, called the Verified Electronic Pedigree (VEP).

"We considered going with RFID [radio-frequency identification] tags but it just didn't seem to be far enough along in terms of real deployment," Coates says. "We wanted to get out there first to differentiate ourselves from competitors and further validate the integrity of our channel."

Coates says his team nixed RFID mainly because of the cost of tagging each individual package and bottle; the relative immaturity of the technology also was a factor.

For a drug distributor with annual sales of $10 billion—roughly 20 times larger than FFF—the cost to set up an RFID system to track prescription drugs and integrate it with an enterprise resource planning system was pegged at about $16 million, according to a 2004 study prepared for the Healthcare Distribution Management Association, which represents drug distributors. The RFID tag readers would cost another $180,000 to $200,000 for each warehouse.

The analysis, prepared by consultancy A.T. Kearney, also found the annual savings could reach as much as $4 million due to better tracking of drugs, lower labor costs and other factors. Benefits cited in the report include a reduction in out-of-stock drugs and automation of double-checking orders—replacing a manual process and reducing errors.

Another benefit: Over time, an electronic tracking system can save money compared to a paper-based system, according to an analysis prepared by the Drug Enforcement Agency (see "The Antidote to Lost Drugs," p. 67).