Global Insight Perspective | |
Significance | Pfizer (U.S.) last month appointed Unichem (part of Alliance Boots) as its sole distributor in the United Kingdom. The move instigated complaints from other drug wholesalers claiming that the exclusive arrangement was anti-competitive and not in patients' interests. |
Implications | The Office of Fair Trading (OFT) did not have time to undertake a full investigation before the starting date of Pfizer’s agreement with Unichem. Other companies, such as Novartis (Switzerland) are likely to await the OFT’s findings before making a decision on whether or not to follow suit with a planned "direct-to-pharmacy" distribution arrangement in the United Kingdom. |
Outlook | The OFT investigation will look into the likely impact of changes to drug distribution channels on industry competition, the healthcare system and patients. Drug wholesalers may be able to refer to any findings that point to a possible negative impact in order to fight proposed changes by other drug-makers. |
The Office of Fair Trading (OFT), the United Kingdom’s consumer affairs body, today announced the launch of an investigation into the country’s drug distribution market, following the implementation of a controversial agreement between Pfizer and Unichem. Pfizer’s has appointed Unichem as the sole distributor of its medicines in the country, and was able to move ahead with this plan after a group of eight drug wholesalers led by Phoenix Healthcare Distribution and AAH Pharmaceuticals failed to obtain an injunction against this exclusive arrangement (see United Kingdom - United States: 6 March 2007: Pfizer Gets Green Light for Exclusive U.K. Distribution Deal with Alliance Boots). However, the wholesalers’ attempts to scupper Pfizer's plans failed largely because the OFT had not had time to undertake a full examination of the implications of this deal before it was due to be implemented; the eight wholesalers formalised their appeal for an interim injunction just two weeks before the Pfizer-Unichem deal was set to be put in to practice. Although the Pfizer deal went ahead, drug wholesalers will be hoping that the examination and a formal ruling by the OFT will support their efforts to stem a flow towards exclusive or “direct-to-pharmacy” deals, which would seriously undermine their role in the system.
Other large pharmaceutical multinationals—such as Novartis (Switzerland), AstraZeneca (U.K.) and Eli Lilly (U.S.)—have signalled an interest in following Pfizer’s lead by streamlining their distribution channels in the United Kingdom. Novartis, for instance, has reportedly sent letters to several U.K. wholesalers, stating that it is considering the adoption of a "direct-to-pharmacy" arrangement, according to The Guardian reports. The company is reportedly mulling a strategy, whereby wholesalers would be used solely for logistical services. Pfizer and other large drug manufacturers claim that the current multi-channel system raises the risk of counterfeits infiltrating the supply chain. However, the wholesalers claim that Pfizer’s strategy is anti-competitive, that it will cause supply shortages, and that it is not in the best interests of patients. They also argue that branded drug-makers such as Pfizer and Novartis are motivated not so much by concerns over counterfeits but by a desire to stamp out the parallel trade of medicines throughout Europe, whereby cheaper products from European Union (EU) countries such as Spain and Greece are making their way into key European markets such as the United Kingdom and Germany through drug wholesalers. Parallel trade seriously threatens the ability of drug manufacturers to command high premium prices in the United Kingdom, and hence, a tighter grip on distribution networks would help to defend high revenue streams in the United Kingdom.
Outlook and Implications
Pfizer and Unichem have stated that their exclusive distribution deal will remain unaffected by the OFT investigation. Although both companies have said that the OFT’s examination does not constitute a formal investigation into its own medicine supply and distribution arrangement, Reuters reports that the OFT itself has said that it will examine the impact of the Pfizer deal and changes to the distribution of medicines “on competition, the publicly funded National Health Service and patients”. Hence, it is possible that an official ruling will be made by the watchdog body once the investigation is complete. Furthermore, drug wholesalers will eagerly await the investigations findings in the hope of emboldening their case in any possible legal action against Pfizer and any additional drug manufactures. The OFT will report back in a years time, and it seems unlikely that other drug manufacturers will take the risk of changing their supply mechanisms before the findings of this examination are unveiled.