10 February 2008
Wholesalers Threatened as Big Pharma Adopts Direct-to-Pharmacy Drug Distribution Model
The traditional model of pharmaceutical distribution is under threat in Europe, and the UK is seeing the first of the changes, finds new research
The adoption of a Direct-to-Pharmacy (DTP) model in the UK by some of the industry's most powerful players will see the traditional model of pharmaceutical supply chain being overthrown and pharmacists being encouraged to expand their role beyond dispensing.
Under the new scheme, seen first in the UK, pharmaceutical manufacturers enter into an exclusive agreement with particular wholesalers and make them the sole supplier of its medicines. In effect, the company is selling the drugs directly to pharmacies, and paying the wholesaler a set fee to deliver them.
The Guardian reported that the new model is in stark contrast to the traditional model, where medicines are distributed through a network of wholesalers, who compete between themselves to supply pharmacists at discounted prices. In this model, a wholesaler had to demonstrate to pharmacies that it can offer a better service than its rivals and provide assurances on its delivery services before receiving its payment. However, there are signs that mistrust between manufacturers and wholesalers appear to be an important cause contributing to the change.
Adoption of DTP model Prompts Concern
GlaxoSmithKline pioneered the DTP scheme several years ago, and Pfizer followed suit in March 2007. Several other companies such as Novartis and Eli Lilly are looking at switching to DTP. However, the scheme has come in for its share of criticism as pharmacists fear they will get lower discounts when they buy medicines, which will have the knock-on effect of leading to higher costs for the NHS. There has also been anxiety that service levels might worsen because wholesalers are not competing against each other any more.A report from URCH Publishing, Pharmaceutical Distribution in Europe , finds that an official inquiry by the Office of Fair Trading (OFT) highlighted concerns that the new distribution model could lead to rising costs for the UK’s healthcare system and diminished distribution service, but no concrete action has been taken that would cause pharmaceutical companies to retreat.
Pharmaceutical companies have justified the changes saying that the new scheme would make the supply of drugs more effective and efficient, give them more control and help in controlling the sales of counterfeit drugs.
Distributors Unhappy With Changes
Given that wholesaler turnover in the EU exceeds €135bn each year, the move towards DTP has important implications for those distributing drugs. The scheme is unpopular as it can potentially drive certain wholesalers out of business if they do not become a preferred option for the major manufacturers. Author of the report, Mr. Faiz Kermani says, “A number of wholesaler associations are lobbying at the highest levels within the EU to prevent manufacturers implementing changes in the supply chain, but if the UK experience is representative, they are unlikely to succeed. It is clear that the European supply chain is destined for change.”
