ePedigree In Pharma — RFID Delays Mean More Work Lies AheadLaura Ramos

Vice President

Forrester Research

November 2, 2005. Call in at 10:55 p.m. Eastern Time

Theme

However uncertain, the path to ePedigree compliance — and

benefits — starts now.

Agenda

• RFID overview and pharma market perspective

• State of ePedigree adoption in pharma

• Benefits and road blocks

• A word about RFID vendors in pharma

• Processes likely to benefit in the future

• Best practices

The RFID market is still very new . . .

Yes17%

No67%

Don't know16%

Base: 210 North American and European decision-makers

“During 2005, will your company purchase RFID technology?”

Retail and consumer products25%

Public sector22%

High tech14%

Other (nine industries)39%

Source: Forrester’s Business Technographics® November 2004 Benchmark Study

. . . And suffering its share of disillusionment

• Perception that RFID is “that Wal-Mart thing”

• Limited understanding of RFID

• Belief that other types of data offer more near-term ROI

• Concerns — true and unfounded — about RFID and privacy

Pharma definitions

► Pharmaceutical pedigree: record of a drug’s chain of custody, from the point of manufacture to the point of dispensing.

► ePedigree: electronic version of record.

Why ePedigree?

• Counterfeit drug activity is rising sharply.

• State laws require pedigree starting in mid 2006 (ePedigree in 2007).

• FDA favors it.

• Consumers demand safer drugs.

Source: “Combating Counterfeit Drugs: A Report of the Food and Drug Administration” FDA annual update, May 19, 2005

Firms united on safety, not drug pedigree

Base: 13 respondents from top pharmaceutical and life sciences companies

Source: September 21, 2005, Market Overview “Pharma Won’t Meet ePedigree Deadlines”

Many factors affect ePedigree adoption

• Accelerators:

» Regulation compliance

» Quality control

» Law enforcement

» Inventory mgmt process improvements

» Need for real-world awareness

• Inhibitors:

» High cost

» Technology issues

» Weak business case

» Accepted use of parallel trade

» Lack of standards

» Conservatism

Industry progress lags behind

• No full warehouse or data system in production

• $10B+ pharma firms can spend $60M on setup

• Wholesale distributors = $10M to $20M per year

• Falling back on paper

Base: 13 respondents from top pharmaceutical and life sciences companies

Asymmetric cost/benefits impeded progress

RFID benefits expected

Base: 13 respondents from top pharmaceutical and life sciences companies

Any expected

Most expected

12

10

9

9

4

2

2

1

3

5

3

2

Supply chain visibility

Greater safety/security

Regulatory compliance

Less theft, loss of product

Process improvement

Reduce compliance costs

Faster clinical trials/FDA submission

Lower cost of drug logistics

Which benefits expect to gain from ePedigree?

Future RFID uses under consideration

Base: 13 respondents from top pharmaceutical and life sciences companies

6

6

4

4

3

2

2

1

1

0

0

Inventory and replenishment planning

Transportation management

Demand planning and forecasting

Order management and fulfillment

Long-term advert. and merchandising

Trade promotion management

Consumer segmt/retention mktg

Prod dev and new-item intro

Other (Submitted: cold chain management)

Pricing and revenue management

Assortment planning

For which other processes are you considering RFID use?

Technical, cost, and complexity concerns dominate the pharma conversation

Base: 13 respondents from top pharmaceutical and life sciences companies

Rate the extent you agree or disagree with:

Greatest challenges: data, cost

• Data:

» Data management and providing or receiving access to data collected

» Finding a way to manage and use all the data it will provide

» Getting good, solid, usable data (Reference to RFID read accuracy)

» Translating low-volume pilots into high-volume production

• Cost:

» Cost, people resources, and acceptance in industry.

» Determining how costs for implementation will be footed both internally and

externally.

– Internally, should it be funded by marketing or supply chain departments?

– Externally, how should costs be split between manufacturers, distributors, etc.?

Greatest challenges: cooperation

• Cooperation:

» Getting the wholesalers and retailers involved in the sharing of product information through the supply chain.

» Getting agreement amongst trading partners on access to and use of data.

» Getting agreement from customers to accept and share data downstream.

No one vendor provides full solution

SupplyScape, T3Ci, Cyclone Commerce

SAP, Oracle

3M, CCL, Northern Apex, Symbol, Tagsys, Texas Instruments, West Pharmaceuticals

Intel, Manhattan Associates, MeadWestVaco

AccentureCapgemini

HPIBM

UnisysPedigree

apps

Software platforms

RFID middleware

Hardware: tags, readers, labels

Look at authentication as intermediate step

Source: August 19, 2005, Quick Take “TI, 3M, And VeriSign’s Rx For Drug Fraud”

Beyond ePedigree compliance

• RFID benefits pharma distribution chain processes:

» Lot-level inventory management

» Controls to support regional markets and pricing

» Support recalls

» Clinical trials supply management

» Adverse drug interactions warnings/notification

» Integration with bedside dispensing to generate clinical data

Pharmacy: reducing dispensing errors

Medical device, hospital management

Patient compliance?

Prototype AutoID computers on a dime

Pharma RFID tipping point by end of decade

Source: September 21, 2005, Market Overview “Pharma Won’t Meet ePedigree Deadlines”

Withstanding current RFID environment

• Break down communication barriers

» Establish timelines for serialization

» Review contracts

» Demonstrate authentication value

• Limit exposure to diverse state regulations

» Specific warehouses for FL

» Don’t mix RFID with non-RFID

» Top counterfeit products

» Fall back to paper

Withstanding current RFID environment

• Experiment now, not later

» Be prepared to throw away initial projects.

» Don’t wait for partners or vendors to lead.

» Anticipate system validation work.

• Build business case

» Capture RFID specific costs

» Bring actual costs from pilots/regional centers to bargaining table

» Look for labor savings first

» Best outcome: authentication cost sharing in 18 months; ePedigree in 3 to 5 years

Recommendations

• Expect states and FDA to sharpen focus on ePedigree.

• Focus on data mgmt m’ware and business rules.

• Work to even out distribution cost burdens.

• Put compliance effort/$$ back into business.

• Support local law enforcement — and pharmacies

Selected bibliography

• September 21, 2005, Market Overview “Pharma Won’t Meet ePedigree Deadlines”

• August 19, 2005, Quick Take “TI, 3M, And VeriSign's Rx For Drug Fraud”

• July 7, 2005, Trends “Authentication, Not RFID, Will Make Drugs Safer”

• March 16, 2005, Forrester Collection “RFID: The Complete Guide”

• December 15, 2004, Trends “FDA Pushes RFID Agenda on Pharma”

• December 6, 2004, Best Practices “What Does The Bar-Code’s Past Reveal About RFID’s Future?”

• September 28, 2004, Trends “How RFID Adopters Buy Technology”

• March 1, 2004, Market Overview “RFID At What Cost?”

Laura Ramos

lramos@forrester.com

+1 408/327-4330

www.forrester.com

Thank you

Entire contents © 2005 Forrester Research, Inc. All rights reserved.