Pharma Takes Control Of Distribution Chains - Pharmaceutical Technology

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Pharma Takes Control Of Distribution Chains
Many pharmaceutical companies in the UK have adopted a direct-to-pharmacy (DTP) distribution model, which enables companies to more tightly control their supply chains. Although DTP has faced some opposition from wholesalers, no legal steps have been taken in the UK to prevent its continued uptake. With the system now beginning to gain a foothold in Poland (although a legal battle with the authorities may ensue), pharma companies may attempt to introduce DTP in other EU countries.


Pharmaceutical Technology Europe
Volume 22, Issue 8


Faiz Kermani
The pharmaceutical supply chain is a high-value business, with all those involved constantly scrutinising how the chain operates and what implications it will have on commercial activities. As with all buyer/supplier relationships, there has always been some degree of conflict between European supply chain participants, but this has intensified since 2006.1

Traditionally, manufacturers sold their products to wholesalers, who then competed among themselves to become the main suppliers to pharmacies. A more recent trend established in the UK, however, is for companies to use a directtopharmacy (DTP) model, where companies sell their products directly to pharmacies and appoint a limited number of logistic service providers (LSP) to deliver the medicines on their behalf. Pfizer implemented such a model in 2007 and a number of other pharma companies have also set up similar agreements in the UK.2

A 2009 survey of pharmacists, however, revealed that 74% of respondents were unhappy with the UK DTP system.1,3 In general, these critics believe that the distribution system will deteriorate because of DTP.1,3,4 For instance, some pharmacists say Pfizer's DTP system has led to problems with accessing Pfizer drugs for customers, while others claim they have received letters restricting the number of drugs they can order. Pfizer has disputed these comments and denied placing any restrictions on order sizes, and, despite the criticisms, has renewed its DTP agreement for 2010.5,6

The implications of change

With profits being limited by government costcontainment measures and expiring patents, many pharma companies believe that changing their distribution arrangements makes commercial sense. In addition, companies have become increasingly irritated by parallel trade and are determined to gain control over the supply chain, which DTP will enable.

DTP has huge implications for those distributing pharmaceuticals and because of this, wholesalers in the UK have attempted to fight back and have placed their hopes in the British government to do so (wholesalers hoped that the government would support the notion that DTP was anticompetitive after earlier findings by the UK Office of Fair Trading showed that DTP could have some detrimental effects e.g., an increase in costs of medicines for the National Health Service). In May 2008, however, the UK government announced that there had been no change in the services offered to patients caused by Pfizer's DTP arrangement and that a decline in standards was unlikely in the foreseeable future. It ruled out taking any legal steps to prevent DTP, but did state that it would keep the matter under review.7 The pharma industry, on the other hand, seems confident that the major legal hurdles have been overcome as companies continue to take steps to modify their distribution arrangements in the UK.

While some pharmaceutical companies have adopted the DTP model, others have decided to simply reduce the numbers of wholesalers they conduct business with.3 In April 2009, Bayer Schering Pharma announced it would be distributing some of its UK products under a new reduced wholesaler model. BristolMyers Squibb adopted a similar arrangement in August 2009; two distributors now supply most of the company's products, but a number of lines are only be available from BristolMyers Squibb directly. Some observers believe that this type of arrangement is much quicker to implement than the DTP model.8,9 Reducing the number of wholesalers also helps reduce internal costs for manufacturers and, by only dealing with a few wholesalers, may create more manageable business relationships.

In the early days of DTP, associations representing wholesalers were at the heart of the battle to defend the traditional supply change system, but they have now started to back away from this position. This was the case for Groupement International de la Répartition Pharmaceutique (GIRP), which is the European Association of Pharmaceutical Full-line Wholesalers. GIRP sent a letter to the UK's Health Ministry suggesting that DTP arrangements might harm public health and was subsequently taken to court by Alliance Boots, an international distributor based in Switzerland that is involved in DTP arrangements. Eventually the two parties came to an understanding, with GIRP taking the position that specific contracts, signed by a particular member, would not be considered to be proper matters for action or opinion by the organisation.10 The adoption of a neutral position by trade organisations appears to remove a major obstacle for the future expansion of DTP.


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