The Ins and Outs of Selling Pharmaceuticals
Edition: October 2005 - Vol 13 Number 10
Author: Laura Thill
When it comes to selling pharmaceuticals, some distributor reps have just one thing to say: “Thanks, but no thanks.” The opportunity to sell pharmaceuticals is there, but many medical surgical distributors tend to shy away from this market. “My experience is that most med/surg companies do not emphasize the drug end of the business as much as they can,” says Dennis Andrews, sales manager, hospital division, STAT Pharmaceuticals in Santee, Calif. “Distributors often are intimidated by selling drugs and pharmaceuticals. They tend not to talk about these [products] with their customers and miss out on opportunities.”
Andrews specifically is referring to selling injectables, which include, among other drugs, steroids, hormones and pain medications. “There is a big opportunity for med/surg distributor reps to sell these,” he says.
Too many restrictions
The flip side, however, is that the pharmaceutical market is encumbered by numerous restrictions, according to some distributors. Particularly with regard to selling biological pharmaceuticals (blood products) and vaccines, the market becomes more competitive. “These drugs are often sold directly from the manufacturer [to doctors’ offices],” says Andrews. So, medical-surgical distributors often see a low profit margin, which does not always justify the difficulty involved in acquiring licenses and handling these products.
Indeed, the handling, transport and storage of biological pharmaceuticals and vaccines raise some red flags for many distributors, according to Allan Davies, president of Expert-Med Inc. in Ormond Beach, Fla. Davies believes that interest in selling pharmaceuticals has been tempered by these and other restrictions. “Selling biological pharmaceuticals and vaccines is not something that can be done without careful consideration,” he says. For instance, all biologicals and vaccines must be refrigerated and transported at specific temperatures. “We use security alarm systems for temperature control in our warehouses for proper storage,” he says. While equipping a warehouse with these devices is an expense, it is crucial to do so.
When storing biologicals and vaccines, excessive heat is always a concern. But, an even bigger issue is avoiding accidentally freezing these products while trying to keep them adequately refrigerated. Davies likens shipping biologicals and vaccines to an art. “There are specific types of shipping coolers, and some work better than others,” he says. “You can’t simply ship vaccines in a cooler with an ice block because they might [inadvertently] freeze. And, we can’t deliver bad vaccines to doctors who [unknowingly] will give them to children.”
Chris Ground, senior VP of national accounts at FFF Enterprises in Temecula, Calif., agrees. “Our product is a specialized group of biological pharmaceuticals derived from human plasma,” he says. “It is expensive and it must be handled in a specific way.” And, unlike medical supplies, which often have a longer shelf life, biologicals can only be stored for a certain amount of time. For both injectables and biological drugs, distributors must acquire state licenses and DEA certificates (a type of narcotics license), according to Andrews. And as pedigree legislation becomes more imminent, some states require distributors to purchase $100,000 surety bonds in order to do business in that state. Further, injectables, such as Demerol and morphine, are classified as Schedule 1, 2, 3, 4 and 5, with Schedule 1 denoting the strongest drug category. Depending on the schedule, physicians must sign different forms or certificates.
What drives the market?
Injectables, such as steroids and pain medications, continue to be big sellers to physician practices. Seasonal vaccines – particularly flu vaccine – are also in demand. Still, Ground is skeptical that many distributors will embrace selling the flu vaccine. “Distributors must be able to deliver large quantities of this vaccine in a concentrated amount of time,” he says. Not all companies are equipped to do this.
Sometimes the driving force behind which pharmaceuticals are, or are not, selling is as simple as manufacturers misjudging the market demand. “We may have six manufacturers guessing what the market need will be,” says Ground. “It’s difficult to anticipate this exactly. One year, there may not be enough patients to absorb the supply [of a vaccine], so the product ends up selling for less than it costs to produce it.” If one manufacturer is forced to stop producing the vaccine, suddenly there is too little supply to fill the demand.
Ideally, distributors prefer to purchase their pharmaceuticals directly from the manufacturer. “We like to keep our distribution chain short and clean,” says Ground. Not only does this give the customer more confidence that a particular drug has a clean pedigree or history, but it tends to keep the price down. Smaller distributors, however, do not always have the option of working directly with manufacturers, who often prefer selling in bulk to larger players. At the same time, manufacturer contracts sometimes preclude distributors from selling their product to another distributor, according to Davies.
On the biological side of the industry, Ground observes that pricing has grown much more competitive, especially with recent pressure to keep abreast of HMO and PPO pricing. The Internet, and the instantaneous access it affords to information on pricing, has also created a more competitive atmosphere in the pharmaceutical market.
Still, the cost of pharmaceuticals has increased substantially over the last 15 years, notes Andrews. And physicians have no choice but to make these drugs available for their patients. So, in many cases, they are forced to pay the higher price.
Experts disagree about whether there are more or fewer generic pharmaceuticals on the market today than in years past. Some distributors have experienced a flurry of generic vaccines penetrating the market, while other say they are selling more brand-name injectables. Compared to the 1980s, when Steris Corp. produced a lot more generic drugs, there are relatively fewer generics available today.
In the end, choosing a brand over a generic is just a matter of a physician’s comfort zone. “Older doctors often stick with the brand names they are used to,” says Davies. “Younger doctors tend to buy generics more easily.”
“It’s a big bag of worms,” says Andrews of the many questions raised by impending pedigree laws. Indeed, about 20 states currently have bills in various stages to pass pedigree laws, which require distributors to track and report where a drug or drug-containing device has been, from manufacturer to end-user. Many distributors worry about the financial impact of these laws. “We hear a lot of talk about pedigree, but many of these regulations will not be effective until later in 2006,” notes Andrews. “Still, it is quickly becoming a big concern for us.”
“If a doctor requests a pedigree, we will provide one,” Andrews continues. In fact, STAT Pharmaceuticals automatically includes a lot number and expiration date on all of its invoices.
“We’ve seen a lot of abuse of pedigrees, especially forged and falsified paper pedigrees,” adds Ground. In addition, when pharmaceuticals are sold from one distributor to another, and then to yet another, the pedigree falls apart. In response to mounting pedigree issues, FFF recently launched its Verified Electronic Pedigree (VEP) system, which allows physician customers to review transactions online and see which manufacturers products originally came from.
Say “yes” to drugs
“There’s no magic involved in selling pharmaceuticals,” says Andrews. “In fact, a successful med/surg distributor should focus on three areas: equipment, supplies and pharmaceuticals.” The good news is that the opportunity to sell pharmaceuticals should always be there. “The market may not be growing stronger, but it certainly should remain steady,” he says. “There will always be a need for injectables and vaccines.”