Effective Brand Protection & Supply Chain Integrity Strategies. Ron Guido President, LifeCare Services, LLC September 9, 2014

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2 Effective Brand Protection & Supply Chain Integrity Strategies Ron Guido President, LifeCare Services, LLC September 9, 2014

3 Agenda Call to action to safeguard healthcare supply Supply chain vulnerabilities Anti-counterfeiting best practices & technologies Confessions of a counterfeiter Implementing supply chain integrity strategies

4 What would you do? 1. Surgeon informs your company that she implanted fake mesh in 42 hernia repair patients. 2. FDA discovers a counterfeit version of one of your branded drugs and asks you to recall all inventory of that drug until the scope of the problem is known. No tolerance policy for counterfeiters and illegal diverters

5 Counterfeiting & Diversion perhaps your greatest competitive threats ever Counterfeiting & Intentional Adulteration --- Illegal Diversion & Theft Have become significant global problems threatening supply integrity 1. Places patients & consumers at risk 2. Places brand reputation and company image in jeopardy 3. Erodes both top and bottom line business value Counterfeiting is a large and growing business ($1.7T by 2015) 10% of total world trade is counterfeit; $700B in 13; growing 20% p.a. Drugs & medical devices- 3 rd most counterfeited category The WHO estimates that 8-10% of the world s drug supply is fake (~ $80B) Diversion enables counterfeiters Diversion is how counterfeits are inserted into legitimate channels Diverters are motivated by profits not patient care

6 2013 Seizures by Source Country per DHS China and Hong Kong together remain the primary source country for counterfeit and pirated goods, representing 94% of all IPR seizures (24,000) by domestic value ($1.7B). India and Pakistan both made the Top Ten Source Countries due to seizures of counterfeit pharmaceuticals which accounted for 85% of the value of all IPR seizures from both countries.

7 Supply Chain Vulnerabilities 1. Lack of control throughout the supply chain 2. Lack of visibility into product flow 3. Distributor compliance (to safe & secure practices) 4. Reverse logistics 5. Cargo theft 6. Pricing arbitrage 7. Repackaging from original containers & labeling 8. Uncoordinated incident investigations 9. Internet lack of regulations & unknown sources of supply 10. Inventory flow asynchronous to financial transactions

8 Brand Protection Purpose Brand Protection, as a business discipline, focuses on securing product supply to help protect patients/consumers and sustain business value. BP sets strategic direction for your company s anti-counterfeiting measures, operational practices and public policy. Brand & Company Reputation Consumer Safety Business Value Protection

9 Comprehensive Approach to Supply Integrity People Processes Technology Organizational Commitment Suppliers Authentication Capabilities & Competencies Manufacturing Track & Trace Enforcement & Prevention Distribution Complementary Technologies Interactive Cross Industry & Public Sector Collaboration

10 Safe & Secure Supply Chain Best Practices Executive Mandate: Brand Protection Governance 1. Incident Reporting and Management 2. Awareness and Education 3. Market Monitoring 4. Commercial Insights 5. Distributor Compliance 6. Contract Manufacturing 7. Product Protection Technology 8. Product Returns & Destruction 9. Transportation Security 10.Facility Security

11 Framework for Product Protection Is the product and packaging genuine? Safe & Secure Supply Chain Is the chain of custody intact? Product Authentication Product Movement Product Identity Physical Features Track Trace Point Authentication Flow Visibility

12 Anti-Counterfeiting Technologies 1. Overt/Covert Packaging Markings 2. Unique Identifier Serialization- Unit of Sale 3. Package Insert Couponing 4. Website-based Package Verification 5. Mobile Phone Authentication 6. Dose Formulation Authentication 7. Covert Tracking Devices 8. Geographical Information Systems It may seem like a boatload, but we re going to need a bigger boat

13 Supply Chain Integrity Requires Technology Adoption Serialization and track & trace with field authentication systems 2. Track & Trace Solution Integrated Technology 1. Serialization 3. Authentication

14 Track & Trace Potential Business Benefits 1. True Demand Sensing 2. Inventory Optimization 3. Management of Returns 4. Management of Recalls 5. Isolation of Stolen Cargo 6. New Product Tracking 7. Expiry Date Tracking 8. Reduction of Diversion 9. Distributor Performance 10. POS Pricing Accuracy New Business Model for Trading Prescription Drugs: Payments between trading partners and inventory transfer records are triggered simultaneously by the act of scanning serialized bar codes as proof of safe passage.

15 Summary: The New Reality in Pharmaceuticals Distribution Counterfeiting and illicit diversion of healthcare products are serious and growing concerns 2. We have a shared responsibility to help safeguard all who use or benefit from our products 3. Preserving brand reputation and increasing consumer confidence is essential to sustainable business growth 4. Safe & Secure Supply Chain management is now an essential competency for all health care businesses 5. The immediate call to action is to implement proactive safeguards embodied in brand protection best practices

16 Confessions of a Counterfeiter Exploiting the not-so-best practices of the bio-pharma supply chain

17 My Confessions to the Bio Industry Myth: Despicable Evil Wrongdoings Truth: Opportunistic Business Activities Imitation is the Sincerest Form of Flattery Employees at fake Apple stores in China Charles Caleb Colton (1820) an English cleric

18 Confession #1 My Market Space: The Facility of Global Commerce Free trade agreements & move towards global economy Growth and capitalization of emerging markets China has become the world s factory Internet lack of regulations Under-resourced regulatory and enforcement agencies Lack of respect & protection for IP in some countries The 1 st key to my success is a general lack of control and visibility of supply chain activities

19 Confession #2 My Targets: Multi-National Brands with High Demand Reputable brands- highly recognizable logos Global brands register trademarks everywhere Price is nice but not as important as volume Areas of prime interest: apparel, media products, software, electronics and healthcare, especially drugs The 2 nd key to my success is high volume, recognizable goods, they get less scrutiny than specialty items

20 Confession #3 My Modus Operandi: Never Be Seen with the Goods My manufacturing site not visible to legitimate supply chain Cross a border as soon as possible Utilize gray market diverters to dilute fake products Ship across borders in small quantities rather than bulk Utilize my friends & family for import/export operations Avoid track & trace. Embrace clueless & apathetic The 3 rd key to my success is to create as much time & distance between my sales and the point where the absence of a genuine is discovered

21 Confession #4 My Technology: Invest in Packaging Always purchase genuine products to use as a template Objective is to fool the inspectors not the users Source from same suppliers used by targeted brands Utilize discarded genuine packaging whenever possible Plant closings offer plethora of resource opportunities Auction sites offer equipment to reproduce anything Anti-counterfeiting technologies are amusing failures The 4 th key to my success is to check for mistakes, most arrests begin with package flaws or documentation errors.

22 Confession #5 My Favorite Pathway: Reverse Logistics are E-Z wins Famous brands have liberal returns policies If sales are slow or risky simply return the goods to the brand owner for genuine credit Product destruction procedures assume trustworthy 3PLs Dumpster-diving for used packaging can be lucrative The 5 th key to my success is to exploit the trust without verification commercial practices of most popular brands

23 Confession #6 My Inspiration: Supply Chains Lack Visibility IP rights holders quickly sell-out their brands to intermediaries creating attractive gray zones Contract manufacturing opens the door for shadow operations Trivial audits by Gov't agents create false sense of security All supply chain traders & retailers are looking for a bargain The internet the counterfeiters expressway to profits Retailers/consumers don t care about source of supply The 6 th key to my success is that records of trade are asynchronous to money and inventory flow

24 Confession #7 My Legal Defense: Laissez Faire Controls impede free commerce Consumers want a bargain Economic development trumps international harmony Counterfeiters create jobs & sell goods at discount prices Brand owners create demand for a category- generics will usually suffice If customs agents can t authenticate in the field, they must allow goods to continue on their way The 7 th key is my success is that consumers are naive, trusting and apathetic

25 Confessions Summary 1. Counterfeiting is an art form so please refer to me as an artist not a criminal 2. The stage is the (vulnerable) supply chain and you are the bad actors on it 3. Trust without verification is your downfall and my windfall 4. This is just the beginning it will take a super hero to stop me now. Thank you for your attention, it s time to go

26 Back to Ron.

27 Going Forward: 5 Strategies to Help Achieve Supply Integrity 1. Integrate best practices and other preventive measures into the fabric of R&D and Operations Ongoing market monitoring and channel buys Awareness & education across all stakeholders Distributor contract terms for ACF practices and data sharing Multi-layered brand protection technology Revise product returns & asset destruction processes Establish metrics to track opportunities & results 2. Provide leadership to industry alliances and public outreach programs, influencing laws and regulations 3. Evolve from market surveillance to business intelligence through supply-demand & trade analytics

28 Going Forward: 5 Strategies to Help Achieve Supply Integrity 4. Implement track & trace systems in supply chain for compliance to the DQSA and to gain operational benefits Supply/demand balancing Inventory optimization & reduced shortages Improved recall & returns processes Efficiency & effectiveness of chargebacks & rebates New goods tracking Cargo security 5. Design and pursue Brand Protection maturity model across full spectrum of prevention categories Benchmark vs. peer companies Evolve from tactical responses to a preventive business discipline No tolerance policy for counterfeiters and illegal diverters