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pharmafile | June 3, 2008 | News story | Sales and Marketing |
Drug distribution restricted as manufacturers attempt to guard supply chain
Ideally, drug supply should be a simple and transparent chain that connects the manufacturer and patient in as few steps as possible. However, in practice, this is rarely the case. Manufacturers are trying to exercise greater control over the supply chain and cut the number of intermediaries; however, a recent European Commission recommendation could put a stop to many of these efforts.
The often circuitous route from manufacturer to pharmacy presents several problems, including the possibility that drug integrity can be compromised in transit, with complex supply chains risking counterfeit drug entry. Driven in great part by the lost revenues that such arbitrage brings, manufacturers have implemented several strategies to tighten their grip on the drug supply chain, one of the most recent being the direct to pharmacy distribution schemes implemented in the UK.
Last year's breach of the pharmaceutical supply chain in the UK has put the issue of parallel trade at the top of the agenda for the European Commission. In the first half of 2007, three batches of counterfeit drugs – Lilly's Zyprexa (olanzapine), Sanofi-Aventis's Plavix (clopidogrel), and AstraZeneca's Casodex (bicalutamide) – were discovered in the UK supply chain, having entered the country as part of legitimate consignments from France.
Europe's free trade policy, combined with the often large price differentials across member states, has driven parallel drug trade, a practice in which distributors absorb most of the profits at the expense of manufacturers. Following developments in the UK, analysts now believe that manufacturers' contention that parallel trade can lead to drug shortages in the export markets and increase the risk of counterfeit drug entry now has some weight behind it.
As a result of revenue lost to parallel trade, manufacturers have long sought ways to gain greater supply chain control and have used several tactics to do this, often bringing them into conflict with distributors. The resolution of one such dispute, between Greek wholesalers and GlaxoSmithKline (GSK), looks to be an unwelcome one for the manufacturing industry as a whole, with ramifications for its stock management powers.
Drug prices in Greece are low relative to many other European countries, leading wholesalers to export to countries such as Germany and the UK, where prices are much higher. In a bid to eliminate trade of this kind, GSK stopped filling Greek wholesaler orders for three drugs – Imigran (sumatriptan), Lamictal (lamotrigine) and Serevent (salmeterol) – in 2000, distributing directly to pharmacies and hospitals instead. In 2001, the company reinstated restricted wholesaler distribution.
Greek wholesalers consequently accused the company of anticompetitive behavior, and brought the matter to the attention of the Greek Competition Authority (GCA), which referred it on to the European Court of Justice (ECJ). Although an Advocate General recommendation came down in favor of GSK, the ECJ refused to rule, batting the issue back to the GCA. In what has become a long drawn-out battle, the ECJ is now expected to issue a ruling some time this year. However, a recent Advocate General recommendation suggests that GSK's actions were not justified, in what may turn out to be a victory for the wholesalers.
The ruling may well influence the outcome of other cases relating to pharmaceutical supply restriction, such as dual pricing and direct distribution. Three manufacturers – GSK, Pfizer and Novartis – have introduced, or intend to introduce, dual pricing in Spain, another popular export country due to the low cost of drugs.
Under dual pricing, drugs intended for export are sold at a premium compared to those destined for domestic use. While the manufacturers claim that the scheme cannot be classed as true dual pricing because it is only one price – the export price – that they set, the European wholesaler association holds that these actions are anticompetitive, and awaits a decision from the ECJ.
Equally contentious has been the introduction of direct to pharmacy (DTP) distribution in the UK. GSK adopted a DTP scheme many years ago and employs all full-line wholesalers (those carrying all prescription drugs) as logistics service providers. More recently, in March 2007, Pfizer controversially introduced an exclusive version of DTP, with just one wholesaler, UniChem, to provide logistics support. AstraZeneca and Sanofi-Aventis have since implemented DTP, using two and three full-line wholesalers to provide logistics, respectively.
Manufacturers claim that the greater control that DTP affords creates a transparent and secure supply chain that can respond more flexibly to market changes, and facilitates the creation of a stronger pharmacy relationship. Many analysts believe that manufacturers would do well to forge stronger links with pharmacists given their increasingly important role in healthcare provision in the UK.
Wholesaler groups are understandably worried, with the potential loss of a third of the UK primary care drug market, corresponding to more than $3 billion in sales. With a large proportion of the top-end high-value drugs passing out of reach of the smaller regional and secondary wholesalers, the industry must act quickly to avoid sinking.
Pharmacies may also suffer in terms of discount and service levels. Under the traditional UK distribution model, wholesalers had to compete to obtain pharmacy contracts in a way which manufacturers operating through DTP do not. An Office of Fair Trading report claims that, for each percentage point reduction in pharmacy discounts, the NHS will be forced to pay out more than GBP50 million ($100 million) a year.
The scheme has been in operation for a little over a year and the jury is still out as to exactly how DTP will impact drug distribution as a whole in the UK. The rest of Europe will undoubtedly be looking on with interest. Although it is likely that other drug companies will follow suit in the UK, the adoption of DTP on a wider scale will depend very much on decisions that the European Commission makes regarding parallel trade and the tactics that manufacturers use to oppose it.
Related research:
Anti-Counterfeiting Strategies – Combating Fake Pharmaceuticals
Parallel Trade in Europe and the US: The challenges facing pharma
