Pharmaceutical Supply Chain in Europe - Adoption of Direct to Pharmacy (DTP) Model to Boost Efficiency and Optimize Pricing

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Summary

GBI Research, leading business intelligence provider, has released its latest research report, entitled "Pharmaceutical Supply Chain in Europe - Adoption of Direct to Pharmacy (DTP) Model to Boost Efficiency and Optimize Pricing". The report focuses on the current scenario of supply chain management. Key participants in the pharmaceutical supply chain in Europe are covered in the report as well as issues such as pricing, labeling, packaging, warehousing, logistics, and distribution.

The number of full-line wholesaler in the UK is decreasing due to an increase in the adoption of alternate distribution systems such as DTP and RWA. A study conducted by the Institute for Pharmaeconomic Research (IPF) in 2010 revealed that Spain had the highest involvement of full-line wholesalers in the pharmaceuticals supply chain process, with 96% of total turnover in the country, while direct sales from manufacturers accounted for only 4%. France had the highest share of direct sales from manufacturers. In 2010, the DTP and RWA models had a high market share of 25% in the UK.

European member states have a lot of differentiation in the pricing of pharmaceuticals. As a result of national price controls and regulations, parallel traders get the opportunity to import pharmaceutical products between EU member states. This provides an opportunity to traders to buy pharmaceutical products in low-price member states and re-sell them in high-price areas, resulting in huge profits.

According to the European Federation of Pharmaceutical Industries and Associations (EFPIA) the nature of parallel trade is such that it greatly complicates the traditional route of supply where quality control is effectively checked at all stages. Examples reported by research-based pharmaceutical companies highlight a series of safety and quality problems arising from the handling of pharmaceutical products by parallel traders, in addition to logistic problems and regular product shortages in some countries where medicines simply do not find their way to patients in need. This raises not only serious safety issues in terms of patient consumption, but also acts as an obstacle in case of product recalls.

The total profit made by manufacturing companies, wholesalers and pharmacies has decreased due to several factors related to the respective level of supply chain processes. For manufacturing companies, the primary reasons for low returns are patent expiries, stringent regulations for new product approvals, economic turmoil, changes in demand patterns, and government pressure to reduce drug prices, among others.

Manufacturing companies are increasingly adopting new models of distribution, such as DTP and RWA, to cut out intermediaries and allow wholesalers to strategically becoming a part of new supply chain models. The government is increasingly keeping check on profit percentage margins leading to low profits for wholesalers over the past decade.

As a result, companies are now focusing on international levels with a primary focus on emerging markets to explore new market segments with segment-specific strategies.

Scope

- Segmentation of pharmaceutical supply industry by its major components such as manufacturers, wholesalers and pharmacies.- Key issues and unmet needs of the pharmaceutical supply chain in Europe.- Analysis of strategies adopted by pharmaceutical manufacturers and wholesalers to stay competitive in the current scenario- Key parameters that are considered for choosing a pharmaceutical supply vendor.- Profile of key companies which deal in pharmaceutical supply chain management.- Analysis of factors which are considered for outsourcing pharmaceutical supply chains to other companies.

Reasons to buy

- Decide on the existing market scenario in pharmaceutical supply chain management.- Analyze the requirements for regulatory compliance for pharmaceutical supply chain management.- Gain knowledge of the key challenges and unmet needs of the pharmaceutical supply chain in Europe.- Develop strategies for quality control of pharmaceutical supply materials.- Develop risk mitigation strategies to enhance risk management.

1 Table of Contents1 Table of Contents 41.1 List of Tables 71.2 List of Figures 82 Pharmaceutical Supply Chain in Europe - Introduction 93 Pharmaceutical Supply Chain in Europe - Overview 103.1 Introduction 103.2 Structure of Supply Chain - Channels of Distribution 103.2.1 Manufacturers - Pharmaceutical Companies 113.2.2 Wholesalers 113.2.3 Pharmacies 113.2.4 Parallel Traders 123.3 Evolution of Pharmaceutical Supply Chain in Europe 123.3.1 The Traditional method 133.3.2 Direct-to-Pharmacy (DTP) model 134 Pharmaceutical Supply Chain in Europe - Industry Dynamics 144.1 Introduction 144.1.1 Current Scenario 144.1.2 Breakdown of the Retail Price of a Medicine 154.2 Pharmaceutical Manufacturers 164.2.1 Label Supply Chain 164.2.2 Raw Material Supply Chain 174.2.3 Third Party Logistics (3PL) 174.2.4 Production Supply Chain 174.2.5 Distribution Supply Chain 174.2.6 Reversed Supply Chain 174.2.7 Profit % for Pharmaceutical Manufacturing Company 184.3 Wholesale Distributors 194.3.1 Current Scenario 194.3.2 Split of Turnover of Distribution Channels 204.3.3 Time of Delivery and Total Number of Deliveries per Week 214.3.4 Distribution Margin 234.3.5 Discounts 234.4 Pharmacies 244.4.1 Horizontal and Vertical Integration 264.5 Direct-to-Pharmacy (DTP) Distribution 274.6 The Impact of the Distribution Chain on Prices 274.7 Policies to Encourage Generic Pharmaceuticals 285 Pharmaceutical Supply Chain in Europe - Principles of Pharmaceutical Supply Chain Management 295.1 Management Systems 305.1.1 Commitment and Accountability 305.1.2 Legal and Customer Requirements 305.1.3 Risk Management 305.1.4 Documentation 305.1.5 Training and Competency 305.1.6 Continual Improvement 305.2 Ethics 315.2.1 Business Integrity and Fair Competition 315.2.2 Identification of Concerns 315.2.3 Animal Welfare 315.2.4 Privacy 315.3 Labor 315.3.1 Freely Chosen Employment 315.3.2 Child Labor and Young Workers 315.3.3 Non-Discrimination 315.3.4 Fair Treatment 315.3.5 Wages, Benefits and Working Hours 315.3.6 Freedom of Association 315.4 Health and Safety 325.4.1 Worker Protection 325.4.2 Process Safety 325.4.3 Emergency Preparedness and Response 325.4.4 Hazard Information 325.5 Environmental Protection 325.5.1 Environmental Authorizations 325.5.2 Waste and Emissions 325.5.3 Spills and Releases 326 Pharmaceutical Supply Chain Industry - Key Issues 336.1 Introduction 336.2 Parallel Trade 336.2.1 Percentage Share of Parallel Imports among EU Countries in Pharmacy Market Sales 336.2.2 Supply Quota Systems (SQS) 346.2.3 Dual pricing systems 346.3 Counterfeits 356.3.1 New Directive by EU Commission for Falsified Medicines 366.4 Difference in Price Regulation 366.5 Packaging Variations 366.6 Variation in Applicable VAT Rates 376.7 Difference in Registration Procedure 376.7.1 GSK- Case Study 376.8 Difference in Marketing Authorization 396.8.1 GSK- Case Study 396.9 Lag in Technological Adoption 406.9.1 GSK- Case Study 406.10 Specific Market Labeling 416.10.1 Repackaging and Relabeling of Products 416.11 EU Draft Guidelines on GDP in Europe 426.11.1 Introduction 426.11.2 Problem 426.12 Tendering 446.13 Disruption in Supply Chain- Case Study 446.13.1 Drug Shortages in Europe - The UK 447 Pharmaceutical Supply Chain in Europe - Strategies Shift in the Business Model 457.1 Introduction 457.2 Factors Leading to Changes in the Business Models of Pharmaceutical Companies in Mature Markets 457.2.1 Diminishing Revenues in Mature Markets Due to Patent Expiries of Blockbuster Drugs 457.2.2 Rising Competition in Mature Markets and Rapid Growth of Pharmaceutical Sales in Emerging Countries 467.2.3 Rising imports 467.2.4 Point of Delivery 477.2.5 Requirement of New Packaging Practices 477.2.6 Pricing Pressures 477.2.7 Patient Centric- B2C Supply Chain 477.3 Strategies to Evolve Supply Chains 487.3.1 Introduction 487.3.2 Entering Emerging Markets 487.3.3 Free Trade Agreements to Generate Cost Savings 497.3.4 Raw Material Procurement Strategies 507.3.5 Distribution Cost Reduction 517.3.6 Strategic Sourcing Models 527.3.7 Supply Chain Agility 547.3.8 Centralized Supply Chain and Local Logistics Presence 557.4 Examples of Change in Supply Chain Arrangements in the UK 568 Pharmaceutical Supply Chain In Europe - Risk Management 588.1 Market Risks 588.1.1 Economic Risks 588.1.2 Regulatory Risks 588.1.3 Specific Market Risks 598.2 Corporate Strategy Risks 598.3 Operating Business Risks 598.3.1 Interruption of Operating Business 598.3.2 Counterfeit Pharmaceuticals 598.3.3 Dispensing Errors 608.3.4 Incorrect Handling of Medicines in the Logistics Chain 608.4 Financial Risks 608.4.1 Currency Risks 608.4.2 Risk of Default on Receivables 608.4.3 Liquidity and Financing Risks 608.4.4 Interest Rate Risks 608.4.5 Counterparty Risks from Derivatives 618.4.6 Measurement Risks 618.5 Information Technology (IT) Risks 618.6 Personnel Risks 618.7 Legal Risks 619 Pharmaceutical Supply Chain In Europe - Drivers and Restraints 629.1 Drivers 629.1.1 Free Trade Policy 629.1.2 DTP Model 629.1.3 Universal Health Care 629.1.4 New Directive on Counterfeit Medicines 639.2 Restraints 639.2.1 Parallel Imports 639.2.2 Differences in Price Regulation 639.2.3 Differences in Packaging Variations 639.2.4 Differences in VAT rates 6410 Pharmaceutical Supply Chain In Europe - Company Profiles of Leading Wholesalers 6510.1 Celesio Group 6510.1.1 Pharmacy Solutions 6610.1.2 Patient and Consumer Solutions 6710.1.3 Manufacturer Solutions 6710.2 Alliance UniChem in Europe 6910.2.1 Pharmaceutical Wholesaling and Distribution 6910.3 PHOENIX Pharmaceutical Activities in Europe 7010.3.1 Wholesale Business 7010.3.2 Retailing 7010.3.3 Supplier Services 7010.3.4 Subsidiaries 7111 Pharmaceutical Supply Chain Industry in Europe - Company Profiles of Leading Logistic Providers 7211.1 UPS 7211.2 DHL 7312 Pharmaceutical Supply Chain in Europe - Appendix 7412.1 Market Definitions 7412.2 Abbreviations 7412.3 Bibliography 7412.4 Research Methodology 7612.4.1 Coverage 7712.4.2 Secondary Research 7712.4.3 Primary Research 7712.4.4 Expert Panel Validation 7812.5 Contact Us 7812.6 Disclaimer 78

List of Tables

1.1 List of TablesTable 1: Pharmaceutical Supply Chain in Europe, Top Five Countries in Europe, Split of Turnover of Distribution Channels in Respective Countries (%), 2010 20Table 2: Pharmaceutical Supply Chain in Europe, Number of Deliveries per Week and Time Taken for Each Delivery (Hours), 2010 21Table 3: Pharmaceutical Supply Chain in Europe, Discount Rates Offered by Wholesalers (%), 2010-2011 23Table 4: Pharmaceutical Supply Chain in Europe, Total Number of Pharmacies in EU-32, 2011 25Table 5: Pharmaceutical Supply Chain in Europe, Pharmacist Remuneration Systems for Reimbursed Generic Medicines in Europe, 2011 26Table 6: Pharmaceutical Supply Chain in Europe, Overview, Share of Parallel Imports in Pharmacy Market Sales (%) 2009 34Table 7: Pharmaceutical Supply Chain in Europe, VAT Rates for Outpatient Prescription Medicines, 2009 37Table 8: Pharmaceutical Supply Chain in Europe, Import and Export in European Pharmaceutical Industry ($bn), 2009-2011 46Table 9: Pharmaceutical Supply Chain in Europe, The UK, Companies Implementing Distribution Changes in the Supply Chain Model, 2011-2012 56Table 10: Pharmaceutical Supply Chain in Europe, Company Profile of Leading Wholesalers, Celesio, Full-Line Wholesaler Brands, 2012 66Table 11: Pharmaceutical Supply Chain in Europe, Company Profile of Leading Wholesalers, Celesio, Pharmacy Trademarks, 2012 67Table 12: Pharmaceutical Supply Chain in Europe, Company Profile of Leading Wholesalers, Celesio, Business Marketing and Logistics Trademarks, 2012 68

List of Figures

1.2 List of FiguresFigure 1: Pharmaceutical Supply Chain in Europe, Overview, Supply Chain Structure, 2012 10Figure 2: Pharmaceutical Supply Chain in Europe, Overview, Customized Supply Chain Structure, 2012 12Figure 3: Pharmaceutical Supply Chain in Europe, Overview, Breakdown of The Retail Price of A Medicine (%), 2010 14Figure 4: Pharmaceutical Supply Chain in Europe, Overview, Breakdown of the Retail Price of A Medicine (%), 2009 15Figure 5: Pharmaceutical Supply Chain in Europe, Manufacturer's Role in the Pharmaceutical Supply Chain, 2011 16Figure 6: Pharmaceutical Supply Chain in Europe, Profit for Pharmaceutical Manufacturing Company, %, 2011 18Figure 7: Pharmaceutical Supply Chain in Europe, Market Share of Full-Line Wholesalers, 2010 19Figure 8: Pharmaceutical Supply Chain in Europe, Top five Countries in Europe, Split of Turnover of Distribution Channels in Respective Countries (%), 2010 20Figure 9: Pharmaceutical Supply Chain in Europe, Number of Deliveries per Week and Time Taken for Each Delivery (Hours), 2010 21Figure 10: Pharmaceutical Supply Chain in Europe, Working Capital Flow Through Supply Chain, 2010 22Figure 11: Pharmaceutical Supply Chain in Europe, Wholesale Distribution Margin, 2009-2010 23Figure 12: Pharmaceutical Supply Chain in Europe, Total Number of Pharmacies in EU-32, 2011 24Figure 13: Pharmaceutical Supply Chain in Europe, PSCI Founding Members, 2012 29Figure 14: Pharmaceutical Supply Chain in Europe, Principles of Pharmaceutical Supply Chain Management, 2007 30Figure 15: Pharmaceutical Supply Chain in Europe, Overview, Share of Parallel Imports in Pharmacy Market Sales (%) 2009 33Figure 16: Pharmaceutical Supply Chain in Europe, Case Study 35Figure 17: Pharmaceutical Supply Chain in Europe, Case Study 37Figure 18: Pharmaceutical Supply Chain in Europe, Case Study 39Figure 19: Pharmaceutical Supply Chain in Europe, Case Study 40Figure 20: Pharmaceutical Supply Chain in Europe, Case Study, 2011 44Figure 21: Pharmaceutical Supply Chain in Europe, Factors Leading to Changes in the Business Models of Pharmaceutical Companies in Mature Markets, 2012 45Figure 22: Pharmaceutical Supply Chain in Europe, Import and Export in European Pharmaceutical Industry ($bn), 2009-2011 46Figure 23: Pharmaceutical Supply Chain in Europe, Global Supply Chain Model, 2012 48Figure 24: Pharmaceutical Supply Chain in Europe, Using Free Trade Agreements to Generate Cost Savings, 2012 49Figure 25: Pharmaceutical Supply Chain in Europe, Raw Material Procurement, 2012 50Figure 26: Pharmaceutical Supply Chain in Europe, Reforming Costs by Optimizing Cash Flow and Working Capital Structure, 2012 51Figure 27: Pharmaceutical Supply Chain in Europe, Strategic Sourcing Model, 2012 52Figure 28: Pharmaceutical Supply Chain in Europe, Case Study, 2011 53Figure 29: Pharmaceutical Supply Chain in Europe, Agile Supply Chain, 2012 54Figure 30: Pharmaceutical Supply Chain in Europe, Centralized Supply Chain and Local Logistics Presence, 2012 55Figure 31: Pharmaceutical Supply Chain in Europe, Risk Management, 2012 58Figure 32: Pharmaceutical Supply Chain in Europe, Drivers and Restraints, 2012 62Figure 33: Pharmaceutical Supply Chain in Europe, Company Profiles of Leading Wholesalers, Celesio, 2012 65Figure 34: Pharmaceutical Supply Chain in Europe, Company Profile of Leading Wholesalers, Alliance Healthcare, 2012 69Figure 35: Pharmaceutical Supply Chain in Europe, Company Profile of Leading Wholesalers, Phoenix Healthcare, 2012 70Figure 36: Pharmaceutical Supply Chain in Europe, Company Profiles of Leading Logistic Providers, UPS, 2012 72Figure 37: Pharmaceutical Supply Chain in Europe, Company Profiles of Leading Logistic Providers, DHL, 2012 73

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