Implementing a rigorous process for third-party distributor qualification and selection helps to minimize risk
Globalization of the healthcare distribution market has spurred medical device and in vitro diagnostic (IVD) companies to outsource, increasing their reliance on third-party distributors. While selling in the global marketplace represents a significant opportunity, it can be challenging due to regulatory and legal complexity and nuances of local healthcare systems.
While larger organizations with existing foreign offices may opt to pursue a direct distribution model, smaller or mid-size companies generally need to turn to third-party distributors to support their global expansion plans. In this blog post, we explore 5 best practices for managing risk and optimizing the likelihood of success when using third-party distribution partners.
1. Validate the distributor’s track record
When evaluating potential third-party distributors, it is critical to validate that the distributor has a history of success in the market, ideally in the product type and therapeutic area of interest. It is also important that the distributor has an established network in the medical community, a deep understanding of the local and/or regional regulatory requirements, a disciplined approach to new product commercialization, and, preferably, previous experience with a similar or adjacent technology. Finally, manufacturers may benefit from confirming that the distributors under consideration have the necessary infrastructure to recruit, train, and retain a productive sales force.
2. Weigh the benefits and risks of having the distributor serve as your local representative
Many countries require manufacturers to have in-country representatives. Device companies often hire local regulatory consultants to serve in this role but may also negotiate with their third-party distributors to take on the responsibility and cost of local registration and act as their local representative. Before engaging a distributor as a local representative, manufacturers should consider the following:
- If the third-party distributor is the local representative, they will likely submit local registration and hold the medical device license in that country, which could have downstream ramifications. If the manufacturer and distributor decide to part ways and the distributor refuses to transfer or cancel the license, the manufacturer may lose access to that market until that license expires.
- Foreign manufacturers cannot communicate directly with local regulators, so the distributor will need to act as a liaison. Consequently, manufacturers should verify that the distributor has a strong relationship and reputation with local regulatory authorities.
- Since the third-party distributor will generally be the first point of contact for complaints or adverse events, it is essential to ensure that their quality system is compliant and robust enough to support the product.
3. Understand the nuances of local markets
Every country is different and, as such, each third-party distribution agreement should reflect and integrate nuances of the local market and regulations. For instance, some countries have private healthcare systems and commercial payers, while others have public systems where the government is a direct buyer of medical devices. Market differences may even exist within countries, requiring distributors with regional expertise. Tax structures, for example, may vary, so manufacturers should prioritize product pricing negotiations in all distribution agreements.
Regulatory agencies consider distributors to be critical suppliers, particularly if they store product, manage product installation and servicing, and handle complaints, among other quality system-related responsibilities. Thus, any third-party distributor must be qualified under the manufacturer’s existing supplier qualification process, in accordance with the local regulatory landscape.
4. Develop a rigorous process for qualifying distributors
At Precision for Medicine, we find it useful to evaluate and qualify distributors from two different, but complementary perspectives—their regulatory competency and their quality system capabilities. It may be useful to create questionnaires to guide the qualification process. From a regulatory perspective, it is important to ask about:
- The regulatory approval process, including timelines, fees, and the potential for accelerated pathways
- Local testing and labeling requirements, including the need for translations
- Standards for sterilization and biocompatibility
- Quality system requirements
- Post-market requirements
- Other applicable local or international standards, including the need for an import license
Assessing a distributor’s regulatory competency has the added benefit of helping the manufacturer understand the opportunities and hurdles of entering a particular market. From the viewpoint of quality system capabilities, manufacturers should review the distributor’s quality manual and standard operating procedures (SOPs), with an emphasis on document control and distribution records. Distributors that have been certified to ISO 9000 or 9001 standards may have a competitive edge. If a medical device requires environmental controls, manufacturers should also check the distributor has appropriate storage facilities and procedures in place.
Once distributors have met the necessary regulatory and quality system criteria, it is advisable for the manufacturer to perform an audit, preferably on-site, of their SOPs and facilities prior to contracting.
5. Incorporate risk mitigation strategies into the distribution agreement
It is imperative for manufacturers to carefully draft and review the language of the distribution agreement, taking into consideration that circumstances may evolve over time. Any contract should include a quality agreement that describes the distributor’s responsibilities related to registration, interaction with relevant regulatory authorities, creation of marketing collateral, and complaint handling. In addition to including provisions for quality, the agreement should outline the responsibilities of the distributor in the case of contract termination. It should also cover what happens if either the manufacturer or distributor is acquired.
Key Takeaway
Manufacturers who are considering the use of third-party distributors to access international markets must develop a deep understanding of the local market, regulatory landscape, and business practices of each country where they hope to sell their products. Developing and implementing a thorough vetting process for potential distributors helps set the stage for mutually beneficial partnerships.
To learn more about how Precision for Medicine can help manufacturers identify and qualify third-party distributors, click here.
