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Medical Device and Package Integrity Testing Integr y Test g grity rity t Headspace and M.A.P. t Permeation O2, CO2, Moisture t Leak, Creep and Burst t Microbial Barrier (ISO 11607) t Odors and Volatiles Instruments and Testing Services Test. Measure. Analyze. 763.493.6370 Email: info@mocon.com www.mocon.com 44 LifeScienceLeader.com Pharma Business illicit trade, the complexities of international supply chains, and the many interconnected business factors that contribute to supply-demand variability. In some respects, the aggregate activity of all counterfeiters that target your brands is best viewed as an unethical competitor, one which attacks your market share, disrupts your brand equity, creates pricing instability, erodes confidence in your products, and disregards your intellectual property. Placing counterfeits on this level allows us to cast the countermeasures in a business perspective, leading to the proper focus on supply chain integrity as part of your annual process of setting goals and objectives. In this business context, the level of counterfeit trade can be estimated based upon analyses of market share, demand patterns, average selling price, and most importantly, accounting for total supply. Such considerations should include qualitative assessments of risk, liability claims, the impact on future competition, especially in emerging markets, and quantitative analyses of the loss of revenue and the impact to brand value. While we are primarily driven by the urgent need to reduce risks to consumers' health and safety, monetized impact analyses are important to set business priorities and to allocate funds to those programs that most effectively drive risk mitigation and revenue recovery. Brand protection value creation, therefore, is generated from successful achievement of three business objectives: • recovery of revenue lost to counterfeits and diversion (lost demand and price) • brand equity enhancements from consumer protection and IP rights enforcement • collateral benefits from applying security measures to supply chain management The first value-creating objective, revenue recovery, is perhaps the most tangible when field actions result in seizures of in-transit goods or raids on rogue manufacturers. In such cases, the market value of the confiscated products can be registered and then extrapolated over a logical period of time to record a credit to the overall anticounterfeiting effort. The greatest opportunity for recapture, though, comes from systemic improvement in practices, policies, and processes that prevent fakes from entering the normal supply chain and help eliminate unauthorized trade of genuine goods. The second category of value creation, brand equity preservation, is related to the negative impact that counterfeits or tampered and mislabeled goods can have on the reputation of your brands and your companies. There are financial models that can be applied to estimate the reduction in brand equity (or market share) that results from a publicly communicated breach of the supply chain (i.e. recall, cargo theft, tainted product, or discovery of counterfeits in the marketplace). Brand equity can also become compromised by undetected counterfeits influencing consumer behavior. Some of the negative implications to brand equity that can result from the presence of counterfeits in the market are: • increase in brand awareness, but only in terms of bad outcomes • reduction in perceived quality • reduction of brand association with high status and value • interruption of brand loyalty • reduction in average selling price due to buyers unknowingly substituting genuine goods with lower-priced fakes The third objective, collateral benefits, is an interesting means of justifying investments in supply chain security because, when many safeguards are implemented, they actually manifest as improvements in the efficiency and effectiveness of the company's routine operations. Thus, the benefits of applying best practices exceed the costs of implementation. Collateral benefits are defined as secondary benefits to the company (beyond the cost avoidance of trade interruptions) resulting from investments in secure supply chain practices. These benefits are derived from creating new or improved business capabilities, access October 2013