The activities in the gray market in the pharmaceutical industry means that real, legitimate medications are being sold outside of official, authorized channels. It’s like buying a brand-name TV from a guy in a back alley instead of from a reputable store. It might be the real thing, but it’s not where it’s supposed to be sold.

This can happen for several reasons, but often it’s because of price differences between countries. Someone might buy a medication cheaply in one country and sell it at a higher price in another.

According to Wiser Market, “In addition, they have high prices compared to their cost of shipping. As a result, there is an extensive gray market for pharmaceuticals, such as around the U.S.-Canada border, as drug prices in Canada are generally lower compared to the prices in the U.S.A.”

The problem with this is that it can be risky for patients. The medications might not have been stored or transported properly, which could affect their effectiveness or even make them dangerous. Plus, there’s no guarantee that you’re getting what you think you’re getting – it could be counterfeit or expired. 

The pharmaceutical industry continues to face the ongoing challenge of gray market activities. Below is a 10-point checklist to help your organization minimize the risks associated with gray market activity. 

1. Identify gray market hotspots

• Understand global product demand: Analyze global market demand to identify regions at high risk for unauthorized resale.
• Monitor price differentials across geographies: Significant price differentials create arbitrage opportunities that can fuel gray market activity.
• Assess market vulnerability: Conduct risk assessments in regions with weak regulations where gray market activity is more likely.

2. Strengthen track and trace systems

• Serialization and electronic fingerprinting: Assign a unique serial number to each product and provide additional protection through e-fingerprinting to help ensure traceability.
• Real-time digital tracking: Deploy systems that enable real-time monitoring of product movements throughout supply chains.
• Integrate data throughout supply chains: Connect your track and trace solutions to enterprise systems to enable holistic supply chain monitoring and provide immediate insights.

3. Strengthen contracts with distributors and suppliers

• Establish clear contractual obligations: Ensure that distributor contracts explicitly prohibit unauthorized resale and outline penalties for violations.
• Conduct regular compliance audits: Conduct regular compliance audits of supply chain protocols to detect potential gray market activities.
• Enforce strong sanctions: Include provisions for terminating contracts and taking legal action against distributors engaged in gray market activities.

4. Monitor and respond to market feedback

• Monitor customer complaints and returns: Track complaints or returns to find evidence of unauthorized or counterfeit products in the marketplace.
• Implement partner feedback loops: Establish communication channels between sales, distributors, and customers to receive timely reports of suspicious activity.
• Analyze market trends: Continuously review sales and market data for unusual activity, such as a sharp decline in authorized sales that could indicate gray market activity.

5. Invest in training and awareness

• Train distributors and partners: Provide training to educate distributors and partners about the risks and implications of gray market activity.
• Provide internal training for employees: Ensure that sales and supply chain teams understand how gray markets operate and can spot potential signs early.
• Establish clear reporting channels: Develop a formal and anonymous process for employees and partners to report suspicious activity.

6. Strengthen legal and enforcement measures

• Strengthen legal provisions in contracts: Include comprehensive clauses that define the legal consequences of engaging in gray market sales.
• Work with law enforcement and regulators: Develop partnerships with law enforcement to help ensure swift action when gray market rules are violated.
• Monitor online and third-party marketplaces: Regularly monitor e-commerce platforms for unauthorized sales and take legal action when necessary.

7. Implement intelligent supply chain technology

• Leverage predictive analytics: Use AI and machine learning to predict regions or merchants exposed to gray market activity.
• Implement blockchain technology: Use blockchain for immutable records of product movements along the supply chain to help ensure transparency and security.
• Leverage IoT for continuous monitoring: Equip products with IoT sensors to track environmental conditions and help ensure products are being handled as intended.

8. Build a strong partner network

• Work with reputable distributors: Only work with distributors that have a strong reputation for compliance and transparency.
• Review partnerships regularly: Periodically review distributor relationships to help ensure contractual obligations and compliance measures are being met.
• Encourage two-way reporting: Establish a system for distributors and partners to report suspicious or unauthorized sales activity.

9. Monitor global markets

• Monitor international trade regulations: Stay abreast of global regulations that could affect your channels and create gray market vulnerabilities.
• Participate in industry forums: Participate in global initiatives and forums to share information on gray market threats and emerging trends in pharmaceutical distribution.
• Conduct competitive intelligence: Understand how your competitors are addressing gray market challenges to adopt best practices and avoid known risks.

10. Conduct regular risk assessments

• Assess risks by product line: Identify which of your product lines are most susceptible to gray market activity based on demand, pricing, and geography.
• Conduct annual supply chain audits: Regularly audit the entire supply chain to identify vulnerabilities that could be exploited by gray market activities.
• Adapt mitigation strategies: Continually adjust risk mitigation strategies based on the results of audits and market analysis.

A proactive, multi-layered approach is critical to combating gray market activity. By implementing this comprehensive 10-point checklist, pharmaceutical companies can better protect their products, preserve their brand reputation, and ensure patient safety. Supply chain integrity is critical, and the use of advanced track-and-trace systems, strict distributor contracts, and continuous monitoring can effectively minimize the risks associated with gray market activities.