Managing Pharmaceutical Reverse Logistics September 17, 2015 Hosted by the RLA Life Sciences Committee

Agenda Introduction Return Scenarios Returns Process Overview Stakeholders Landscape Issues Challenges Opportunities View into the Future Q&A

Introduction Principal / Owner Bradford Rx Solutions since 2013 Focus on pharmaceutical distribution and reverse logistics Deliver large ROI to clients Finance background prior to 22 years Pharmaceutical experience Audit and Financial Reporting Managed several financial operations at McKesson Reverse Logistics perspective from all supply chain partners Privilege to create, build and sustain Reverse Logistics at McKesson for 13 years Client base includes healthcare providers, reverse distributors, wholesalers and manufacturers Business philosophy is entrepreneurial and disciplined Business models must evolve Reverse Logistics should be viewed as a business unit Cross functional collaboration and integration is critical to success

Return Scenarios Wholesaler returns Upon receipt (Damage, Ordered in error) - Returned to MFG MFG initiated (Recall, Market Withdrawal) – Returned to MFG/MFG Provider Wholesaler initiated (Overstock) – Returned to MFG/MFG Provider Wholesaler initiated (Expired) – Returned to MFG/MFG Provider Healthcare Provider (Pharmacy) returns Upon receipt (Damage, Ordered in error) - Returned to Wholesaler MFG initiated (Recall, Market Withdrawal) – Returned to Wholesaler/MFG/MFG Provider Healthcare Provider initiated (Overstock) – Returned to Wholesaler Healthcare Provider (Expired) – Returned to MFG/MFG Provider

Mature Returns Process

Expired Returns Process

Stakeholders Healthcare Providers (HCP) Wholesalers/Distributors Initiate the return process for valuation, disposal and reimbursement Overwhelming source of return volume within the industry Wholesalers/Distributors Primary financial conduit between HCP and MFG Create programs with return providers and HCP Return Providers Outsourced reverse logistics partner for return by (HCP& Wholesaler) and return to (MFG) Manage multiple data elements and processes (Product [NDC], MFG, returns policy terms, shipping or disposal requirements) which are unique to most MFG Manufacturers (MFG) Liable for product reimbursement according to terms and conditions of their policy Initiate the reimbursement by check or credit to wholesaler, return provider or HCP

Landscape Highly regulated industry Many agencies (DEA, EPA, FDA, DOT, State Boards of Pharmacy, State Health Dept.) Return providers subcontract final product disposal for incineration Impact of product traceability on reverse distribution not resulting in a sale Large majority of stakeholders outsource returns processing Generally viewed as non core business processes Complex reverse logistic models to scan, value, reimburse and dispose Rx products High product value and regulations increases product handling Product value approx. $100 per unit Mfg drive product eligibility and terms Stakeholders are heavily dependent on each other to execute well

Stakeholder Issues Healthcare Providers (HCP) Wholesalers/Distributors Unable to recover about 35-45% of expired product’s current value Lack of resources for managing logistic and financial processes Wholesalers/Distributors Managing a financial reconciliation process and collection effort “outside” their network MFG and HCP policies and actions may conflict Return Providers Regulatory burden continues & legislative/regulatory stakeholders lack full understanding Success is heavily dependent on all other stakeholders performing well Manufacturers (MFG) Bear much of the financial responsibility yet have no control of the inventory Reimbursement pricing is complex and critical to understand the source of the return

Challenges Overall return volumes have moderately improved over the years but remain relatively constant due to variety of factors Who or what really drives abandon scripts or inventory that expires on shelf? Significant number of product scans increases cost and excessive reconciliations Which scan is most accurate with most auditable process? Regulatory disintegration creates ambiguity/inconsistency with compliance and increases cost Which regulatory agencies and rules do I follow and what is the business risk I am willing to accept? Data is not transparent to all stakeholders creating exceptions and rework What can be done to identify the correct price for reimbursement from inception of return until final reimbursement? Reimbursement values are highly complex since most returns are NOT from direct purchaser from the MFG How does a MFG determine the price for a product that their wholesaler/distributors sells to the HCP? Reimbursement process lacks EDI penetration with other order to cash processes How can I reconcile to the product level in a paper credit or check environment? Reverse logistic processes and reimbursement valuation are variable and unnecessarily complex Where do I start and how do I remove cost without compromising a safe and secure supply chain?

Opportunities Logistics Data transparency and integration Develop more collaborative relationships and business models with Stakeholders Educate regulatory agencies on reverse logistics practices to improve rules/regulations Data transparency and integration Leverage technology to reduce duplicate processes and systems Increase usage of EDI 812 credit reimbursement Build more auditable processes to remove duplicative handling Inventory inefficiencies and manual processes Share data with stakeholders that drives more value to both parties Utilize traceability for reverse processes where prudent Decision tools at source of the return Assist pharmacists in managing inventory and automating return processes Provide more incentives for supply chain partners to be part of the solution

View into Future Consolidations will continue to impact these Stakeholders Margin pressures will force companies to reduce cost/profit leaks Consumers will be a new stakeholder with take back initiatives Industry needs cost savings to effectively fund “Take Back” processes Product traceability can drive improvement beyond compliance Emerging forward distribution models and specialty products will create new models and change economics of today’s models

Question & Answer What is on your mind now? What could you do as a practical next step? Where do you see opportunity for your company?

Contact Information Scott Bradford bradfordrxsolutions@gmail.com (817) 907-5419 Will Kyzer Airport Business Development Director & RLA Life Sciences Committee Chairman Anchorage Economic Development Corporation +1 907-258-3700