European Pharmaceutical Distribution: Key Players, Challenges and Future Strategies
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European Pharmaceutical Distribution: Key Players, Challenges and Future Strategies By Donald Macarthur BS1353 © Informa UK Ltd, December 2007 All rights reserved: no part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise without either the prior written permission of the Publisher or under the terms of a licence issued by the Copyright Licensing Agency (90 Tottenham Court Road, London W1P 9HE) or rights organisations in other countries that have reciprocal agreements with the Copyright Licensing Agency. This report may not be lent, resold, hired out or otherwise disposed of by way of trade in any form of binding or cover other than that in which it is published, without the prior consent of the Publisher. 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UK Scrip Reports Informa UK Ltd Telephone House 69-77 Paul Street London EC2A 4LQ, UK Tel: (+44) 020 7017 6859 (enquiries) Fax: (+44) 020 7017 4255 Fax: (+44) 020 7017 4255 (orders) Email: [email protected] US JAPAN KOREA Informa Healthcare USA, Inc T Hirata Yoon-Chong Kim 52 Vanderbilt Avenue Shiryo Kenkyujo Ltd Pharma Koreana Ltd New York 3-5-20-405 Sotokanda 14th Floor, KTB Network Building NY 10017 Chiyoda-ku 826-14 Yeoksam-dong, Kangnam-gu USA Tokyo 101-0021 Seoul 135-080 Japan Korea Tel: +1 212 520 2789 Tel: +81 (0)3 3258 9207 Tel: +82 (0)2 554 9591 Fax: +1 212 262 8234 Fax: +81 (0)3 3258 9209 Fax: +82 (0)2 563 8289 Email: [email protected] Email: [email protected] Email: [email protected] © Informa UK Ltd, 2007 Photocopying & distribution of this document is illegal Executive Summary European Pharmaceutical Distribution EXECUTIVE SUMMARY Most prescription medicines in most European countries reach the ambulatory patient by the classic distribution chain: manufacturer- prewholesaler-wholesaler-community pharmacy-patient. In 2005, there were 673 full-line wholesalers with 1,458 operating sites in the EU. Their potential customer base consisted of almost 150,000 final supply outlets or dispensing points (134,800 community pharmacies, 8,000 dispensing doctors and 6,400 hospital pharmacies). Pharmacies have a monopoly on the supply of all medicines to the public in France, Spain and Sweden, whereas in a growing list of countries, including Denmark, Germany, Hungary, Italy, the Netherlands, Poland, Portugal and the UK, over-the-counter medicines can also be purchased in non-pharmacy outlets. Physicians in rural areas in some countries (mainly Austria, the Netherlands, Switzerland the UK) are allowed to self-dispense for their patients if there is no local pharmacy service. Most customers receive on average a twice-daily delivery service from each of two full-line wholesalers. In addition to any direct accounts, pharmacies in countries that do not impose a ‘public service obligation’ on wholesalers may also purchase a limited range of the more popular products from short- line distributors. The number of wholesalers in a country varies from two in Finland and Sweden to around 200 in Italy. In both the Scandinavian countries a system of single channel distribution operates, i.e. manufacturers make exclusive distribution contracts with a single wholesaler which alone is responsible for meeting the needs of the entire market. In the UK, Pfizer (from March 2007) and AstraZeneca (from February 2008) decided to limit distribution to one and two wholesalers respectively, acting as agents. In all other countries, multichannel distribution is found, where wholesalers purchase from all manufacturers and every pharmacy can choose from any wholesaler serving its territory as all stock the full product range. Wholesalers are largely independent companies, either privately-owned or owned by their pharmacist customers as co-operatives. 70% of all wholesalers operate only within certain regions of their country. Community pharmacies make up wholesalers' most important customer group. With the exception of Norway and some Baltic States, the majority of pharmacies in all EU countries are still independents, though company- owned chains increasingly dominate sales in Ireland, the Netherlands and the UK. These self-distribute to their own outlets from central warehouses. Uniquely, all Swedish pharmacies are part of a state-owned chain, Apoteket. The clear trend towards fewer wholesaling companies and fewer warehouses is continuing. The bigger companies are buying up the smaller ones and extending their national reach. They are also integrating backwards into prewholesaling and forwards through acquisition into ownership of pharmacy chains in all countries that allow companies rather than just individual pharmacists to own retailers. At least one of Europe’s ‘big three’ - Phoenix, Celesio and Alliance UniChem (Alliance Boots) – is ranked by sales within the top three wholesalers in Austria, Belgium, Czech Republic, Denmark, Estonia, Finland, France, Germany, Hungary, Ireland, © Informa UK Ltd, 2007 Photocopying & distribution of this document is illegal Executive Summary European Pharmaceutical Distribution Italy, Latvia, Lithuania, Netherlands, Norway, Portugal, Slovenia, Spain, Sweden, Switzerland and the UK. In the case of Denmark, Norway and the UK, the ‘big three’ share all top-three positions. The same wholesalers own a total of 6,000 pharmacies across 11 European countries, including virtually every pharmacy in Norway. A key requirement is for the wholesaler to take title to the goods it sells, and by this gain the right to dispose of them as it chooses. The base price, set by the authorities, on which distribution margins are added is for most countries the MSP or CIF price. Throughout Scandinavia and also in the Netherlands, however, it is the pharmacy purchase price that acts as the base for the pharmacy selling price, with the wholesale margin subject to free negotiation. The percentage component can be fixed or regressive and is sometimes combined with a flat free. In some countries there is a cap on wholesaler earnings for very high cost drugs. Pharmacies are paid on a fee-for-service basis and in addition are reimbursed for the acquisition costs of the medicines they dispense less the co-payments they collect from patients. The calculation of the remuneration component for dispensing social health insurance prescriptions differs in every European country. It is usually based on (a) a fixed fee per item; (b) a certain percentage of the cost or delivery price of the item, or (c) some combination of the two. In some countries, the percentage component is fixed, sometimes it is regressive and in others there is a cap on pharmacists’ earnings for very high-cost drugs. The gross dispensing margin may be eroded by compulsory rebates to social health insurance or by special taxes. Though wholesalers perform an excellent distribution service, some manufacturers are concerned about the rising cost of this, the role of wholesalers in encouraging the use of PIs and the failure of the traditional supply channel to prevent access by counterfeit medicines. Other negative views of wholesalers come from their rising power, in particular their diversification strategies, and their failure to offer pan-European solutions. Direct distribution, in which the wholesaler is bypassed, has always been more common with OTCs, but it is a growing trend with prescription drugs too in some countries. Sometimes this is allied to homecare (in the Netherlands and the UK) or is intended to counter parallel trade strategies (e.g. in Germany). It is not popular with pharmacies. In comparison to the US, mail order of medicines in Europe is very underdeveloped, being mainly limited to OTCs or to non-reimbursed prescription medicines for ‘embarrassing problems’. Dutch-based DocMorris is the main provider, with its customer base primarily in Germany. Wholesalers are most concerned at being relegated to the role of logistics service provider, in receipt of a flat-rate fee rather than a distribution margin. GSK and Pfizer have both adopted this distribution solution in the UK. Though discussions are ongoing between wholesalers and Pfizer in Germany, the concept has yet to spread outside the UK. © Informa UK Ltd, 2007 Photocopying & distribution of this document is illegal Table of Contents European Pharmaceutical Distribution CONTENTS ABBREVIATIONS 7 CHAPTER 1 FROM FACTORY GATE TO PATIENT 11 1.1 Distribution Chain 11 1.2 Prewholesaling 12 1.3 Wholesaling 12 1.3.1 Full-line Wholesalers 14 1.3.2 Short-line Wholesalers 17 1.3.3 Public Service Obligation 18 1.3.4 Multi- and Single Channel Distribution 18 1.3.5 Parallel Importers 19 1.4 Pharmacy 20 1.5 Hospitals 23 1.6 Dispensing Doctors 25 CHAPTER 2 EVOLUTIONARY CHANGES WITHIN WHOLESALING AND PHARMACY 25 2.1 Wholesalers 25 2.1.1 Major Pan-European Wholesalers 28 2.1.2 Prewholesaling 30 2.1.2.1 Alloga 32 2.1.2.2 Movianto 32