How the Gray Market Is Threatening Your Brand

No country is immune from the ravages of drug addiction, abuse and overdose. In February, news broke of the rising number of deaths in Northern Ireland and the entire UK in general due to counterfeit Xanax which is indicative of this global epidemic. It doesn’t matter if a drug is legalized, prescription-only or not even for sale in a country. If there is a demand for it, it will be available by some channel. No software company, Systech included, is going to stop counterfeiters from manufacturing fake product and selling it through channels on the criminal black market.

The pharmaceutical supply chain in the UK and the rest of Europe is being strengthened by the Falsified Medicines Directive (FMD) that went live in February. Essentially, this requires two main improvements. First, manufacturers must place a tamper evidence protection and serialized barcode on each package. Second, serialized product data will be consolidated, and the individual product scanned and validated upon dispense. The criminal counterfeit marketplace couldn’t care less about any of this.

But in addition to drug counterfeiting there is another issue threatening the pharmaceutical supply chain.

The Gray Market

When legitimate medication makes its way to distribution channels not authorized by drug manufacturers, this is considered the gray market. Largely, these medications are diverted out of the legitimate supply chain due to price point differentials and/or availability gaps in different geographies. Distribution is via quasi-legitimate e-pharmacies on the Internet. How this will work in the era of the FMD will be interesting to monitor.

A drug like Xanax, being one of the most popular anti-anxiety drugs in the world, is a perfect candidate for diversion into markets that have higher price-points or availability issues.

In the case of a highly regulated market like the UK, having a popular medication be available only by private-prescription use creates a void. From that void creates a market opportunity for criminals looking to make money from legitimate drugs by selling them outside of the intended channels. For high-demand prescription medications like Xanax, illicit distributors have a perfect storm of an availability gap and the possibility of inflated pricing. Thus, these medications are diverted out of the intended supply chain, and into the fringes of the gray market.

More than likely gray market retailers don’t comply or aren’t aware with the dispense-side requirements of the FMD. Manufacturers may never know where and when their medicines are dispensed as is required. Consumers purchasing from these quasi-legal dispensaries will never know if the medicines moved through the supply chain with the proper level of care in terms of handling, temperature, storage, etc.

As with most things, ensuring consumer safety starts with consumer education. The entire medical ecosystem needs to ensure individuals understand to not purchase pharmaceuticals outside the prescribed method in their country. More importantly, the medical community needs to ensure individuals understand why they shouldn’t buy medicine through illegitimate retailers.

Also, putting a comprehensive anti-diversion program in place will certainly help keep their supply chains safer which means preventing their products from entering the gray market and removing them if they happen to wind up there. An effective anti-diversion program has these eight components as represented in this graphic.

At Systech, we are heavily involved in "covert" solutions to address the diversion issue, and early detection of diverted goods. This will help manufacturers weed out their supply chain "partners" that are not holding up to their contracts and responsibilities.

Pharmaceutical companies can do little about the scourge of counterfeit medications. However, putting a formal anti-diversion program together as seen above is within their reach.

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