Reverse Distribution & Designing a National Consumer Rx Returns Program

1. Reverse Distribution & Designing a National Consumer Rx Returns Program October 23, 2006 Mary Hendrickson,RPh,MBA Director of Quality & Regulatory Affairs Capital Returns, Inc. Mary.Hendrickson@CapitalReturns.com

2. Agenda • Overview of pharmaceutical reverse distribution. • National model for a consumer pharmaceutical returns program. • Proposed changes in DEA regulations to enable such a program.

3. Reverse Distribution Overview • What is reverse pharmaceutical distribution? • Method for pharmacies, hospitals, wholesalers, etc. to return product for potential credit from the manufacturer. • Product is characterized by waste stream and incinerated. • Why do manufacturers issue credit for expired product? • Manufacturers want pharmacies to stock product. • Pharmaceutical product can be expensive and have a short shelf life.

4. Manufacturers Distribution Creditable Product Reverse Distributors Wholesaler returns Wholesalers Direct accounts only Debit memo information Waste Pharmacy Returns Reporting Incinerators Chains Hospitals Independents Retail/Institutional Pharmacies, LTC, Other indirect customer, etc. Process OverviewRx Industry Distribution and Reverse Distribution Model

5. Reverse Distribution • Rigorous reverse processing is necessary: • Environmental and regulatory concerns: • EPA • FDA • DEA • DOT • OSHA • Why pharmacies/manufacturers outsource: • Penalties for failing to meet regulations • Focus on core competencies.

6. Demographics of Reverse Distribution • Major players have 85% of the market: • Capital Returns, Inc. • Stericycle • Guaranteed Returns • Carolina Logistics • EXP Pharmaceutical Services • Multiple smaller reverse distributors located throughout U.S.

7. Reverse Distribution Core Functionality • Centralizes outdated drugs into a finite number of warehouses which can be monitored for regulatory compliance. • Millions of dollars returned to the healthcare industry from pharmaceutical manufacturers each year. • Outdated drugs are removed from the market in a controlled, systematic fashion resulting in reduced diversion possibilities. • Solid infrastructure in place for potential national consumer take-back program.

8. Consumer Returns • Currently no systematic method for consumers to dispose of pharmaceuticals. • Increased focus on impact of pharmaceutical waste on the environment. • USGS Water Quality Study • Warning: Side Effects Can Be Severe, Common drugs are seeping into our lakes, fish, and water supply. May 5, 2005 Milwaukee Journal/Sentinel • Pharmaceuticals in Waterways Raise Concern: Effect on Wildlife, Humans Questioned. Washington Post, July 23, 2005.

9. Ideal National Consumer Drug Returns Program • Easily accessible to all consumer • Uses current infrastructure • Tracks data • NO PERSONAL DATA (HIPAA) • Name, strength, dosage form • Quantity • Pharmacy of origin • Manufacturer • Funding • Allocation to manufacturers of returned products

10. Advantages of utilizing reverse distribution for this process • Limited number of sophisticated players in the market that currently handle patient level returns. • Core competency is receipt, documentation, and proper disposal of outdated drugs. • DEA registrants: have the process controls to ensure product is not diverted and is properly disposed. • Outsourcing of outdated drug processing by independent retail, chain and mail-order pharmacies approaching 100%. • Existing relationships with pharma manufacturers. • Precedent with DEA already exists in the management of recalled controlled substances.

11. Disadvantages of retail pharmacy recipients • Core competency is forward dispensing. • Lack of understanding and systems for insuring compliant disposal. • Ability to be reimbursed for time/disposal may be problematic. • Pharmacist staffing already experiencing severe shortages • Space for segregation and quarantine not available. • Opportunity for diversion substantial. • Sheriff or other law enforcement needed for receipt of controlled substances

12. Funding & Technical Challenges • Pharma manufacturers would need to fund the cost of processing and disposal for their respective drug returns. • RDs may need to re-engineer IT systems for this type of data. • Retail pharmacies at all levels would need to participate and inform consumers. • Consumers would need to be willing to make the effort.

13. Regulatory Challenges • Drug Enforcement Administration • US Environmental Protection Agency • State Environmental Protection Agency • DOT/USPS • State Board of Pharmacy

14. Manufacturers Returns Data Reverse Distributors Wholesalers Waste Incinerators Chains ,MailOrder Independent Retail Pharmacies Process OverviewProposed Consumer Rx Returns Model Distribution Returns Dispense Distribution

15. A winning scenario for everyone • Responsible consumers have a solution for the environmentally sound disposal of unused/unwanted prescriptions • Diversion potential is lessened by removing unused/unwanted medication from homes. • Manufacturers would receive previously unavailable but extremely valuable data on drug compliance and usage • Insurance companies and other interested parties could purchase data on unused Rxs and develop feedback loops for greater compliance and outcomes analysis • Reverse distributors provide total closed loop processing for the pharma industry.

16. Current DEA RD Regulations • Definition and Registration of Reverse Distributors, May 2, 2005 Federal Register • Amended Title 21, Code of Federal Regulations to define the term “reverse distribution” and established a new category of registration • Impacted a number of existing regulations

17. Relevant Supplementary Information* “The overall goal of the Controlled Substances Act (CSA) and of DEA’s regulations in Title 21, Code of Federal Regulations (CFR), Parts 1300-1316, is to provide a closed distribution system so that a controlled substance is at all times under the legal control of a person registered, or specifically exempted from registration, by the Drug Enforcement Administration until it reaches the ultimate user or is destroyed.” *Federal Register, Vol. 70, No 83, May 2, 2005

18. Relevant Supplementary Information* “When a controlled substances has become outdated or otherwise unusable, the registrant who possesses the substance must dispose of it. However, over the past decade, environmental concerns and regulatory changes have caused drug manufacturers and government agencies, (including DEA and State authorities) to become increasingly reluctant to be involved in the disposal process. Thus, some disposal options are no longer available.” *Federal Register, Vol. 70, No 83, May 2, 2005

19. Relevant Supplementary Information* “For many years, DEA opposed granting DEA registrations to firms solely or primarily engaged in the disposal (whether the transportation portion, actual disposal, or both) of controlled substances because they were not considered an essential link in the closed distribution system that the Controlled Substances Act established to control the flow of drugs from the manufacturers to the ultimate user. In recent years, however increasingly stringent requirements imposed by the U.S. Environmental Protection Agency (EPA) resulted in fewer and fewer approved disposal facilities. *Federal Register, Vol. 70, No 83, May 2, 2005

20. Receipt from Non-Registrants Considered • Primarily from long term care facilities and related organizations • Rejected due to no longer being “part of the closed system of distribution and are no longer subject to DEA’s system of corresponding accountability.” • Consumer returns from residences was not considered

21. Two Compelling Reasons to Re-Visit Decision • Increasing concerns regarding the impact of all pharmaceuticals, including controlled substances, on aquatic and other species • Only viable method for consumer disposal is drain or landfill (postponed pollution) • Rising rates of diversion and accidental poisonings and deaths present an unacceptable public health risk • A consistent, cost-effective, and secure return system would minimize these opportunities

22. Precedent Already Established • Reverse distributors engaged in manufacturer recalls • DEA has approved the receipt of the recalled controlled substance down to the consumer level • A consumer returns program funded by manufacturers is essentially the same process only at the consumer’s discretion

23. Expanding the Closed Loop • Due the symptomatic relief provided by many controlled substances, such as short term pain relief, many legally dispensed prescriptions are not completely consumed by the patient • Bringing these unwanted medications back into a secure, controlled, environment has no down side • Insuring environmentally sound disposal methods has only positive impacts

24. DEA’s Worst Case • Because there is no way to know exactly how many doses are being returned, RD employees could potentially divert within the scope of their duties • Diversion by healthcare professionals, pharmacy, and drug wholesaler employees already occurs to some extent in spite of all precautions • Security precautions at experienced reverse distributors equals or exceeds those of retail pharmacies and healthcare facilities • Removing “uncontrolled” controlled substances from households enables at least some level of accountability for products

25. Proposed Data to be Collected • Name and address of consumer or agent (family member, friend) • Name, strength, dosage form, and number of units of drug • Manufacturer if possible

26. Proposed Logistics • Dispensing pharmacy provides RD telephone number and email and instructs consumer to contact RD in case of need to return medication (Note: this procedure applies to all medications, not just controlled substances.) • Upon receipt of request, RD determines approximate volume of return, name, address, phone number of consumer or agent, and sends out appropriately sized mailing kit with enclosed tracking label (UPS, FedEx, etc.) • That transaction initiates the internal audit trail at the RD • Upon receipt, the RD logs in the returns with all applicable information.

27. Payment and Disposal • The RD stages the controlled substances for disposal with other routinely collected controlled substances. • A record of the transaction is sent to the manufacturer and a fee is assessed as previously contracted. • The relevant data is retained by the RD as required by the CSA. A copy of the data, minus the patient-specific information, is forwarded to a central database for tracking of dispensed but unused medications. • The RD disposes of the controlled substances through a routine witnessed incineration including a Form 41. • ARCOS reporting would seem to be irrelevant, but if required, a specific DEA number for this purpose could be issued.

28. Proposed Changes in 21 CFR 1304.11 Inventory Requirements Addition: (e)(iii) Exception. In the case of receipt of a controlled substance from a non-registrant or their agent, the name of the manufacturer must be included if available.

29. Proposed Changes in 21 CFR1304.22(e)(3) Records Addition: (3) For each controlled substance in finished form received from a non-registrant (consumer or their agent.) (i) The name of the substance. (ii) Each finished form (e.g., 10-milligram tablet or 10-milligram concentration per fluid ounce or milliliter) and the number of units or volume of finished form in each commercial container (e.g., 100-tablet bottle or 3-milliliter vial). (iii) The number of dispensing containers of each such finished form received from the non-registrant or their agent, including the date of and number of containers in each receipt and the name and address of the person from whom the containers were received. (iv) Where possible, the manufacturer or distributor of record of the finished form. (v) The number of units or volume of finished forms and/or commercial containers disposed of including the date and manner of disposal, the quantity of the substance in finished form disposed, and the signatures of two responsible employees of the registrant who witnessed the disposal. (vi) The number of the traceable common carrier label.

30. Proposed Changes in 21 CFR1304.33(f) Reports to ARCOS Addition: (f) Exceptions. (i) A registered institutional practitioner who repackages or relabels exclusively for distribution or who distributes exclusively to (for dispensing by) agents, employees, or affiliated institutional practitioners of the registrant may be exempted from filing reports under this section by applying to the ARCOS Unit of the Administration. (ii) A reverse distributor who receives controlled substances from a consumer or their agent.

31. Proposed Changes in 21 CFR1307.21(d) Procedure for Disposal Addition: (d) Nothing in the above procedures shall prevent a consumer from mailing an unwanted, unused controlled substance which has legally been in their possession or the possession of their agent to a DEA approved reverse distributor for the purpose of destruction as authorized.

32. SUMMARY • Regulations regarding accessibility to controlled substances have continuously evolved over time • It is time to take the next step to provide an environmentally sound, easily accessible, secure system to remove unwanted controlled substances from the legitimate consumer marketplace. • Reverse distributors provide the logical infrastructure for this activity.

33. QUESTIONS? Mary Hendrickson,RPh,MBA Director of Quality & Regulatory Affairs Capital Returns, Inc. Mary.Hendrickson@CapitalReturns.com