Parallel traders are the thorn in the side for pharmaceutical companies operating in Europe. Local sales mangers see their bottom line eroded as independent exporters undercut them with their own product! The considerable efforts that pharma companies have gone to prevent this grey trade have largely failed. The majority of legal actions against traders have been thrown out as freedom of movement of goods enshrined in the Treaty of Rome underpins the European Union.

Now big pharma may have found a way of restricting parallel traders but taking on the distribution of product themselves and thus controlling the supply chain. The adoption of a direct-to-pharmacy (DTP) model, where pharmaceutical manufacturers sell their products directly to pharmacies and appoint a limited number of logistics service providers (LSPs) that are paid a fee to deliver the medicines on their behalf.

“The adoption of a Direct-to-pharmacy (DTP) model by some of the industry’s most powerful players in the UK signifies a new trend that could spread across Europe,” comments Dr Faiz Kermani, the author of a recent report on medicines distribution in Europe.

Pfizer has been at the forefront of establishing of a DTP system in the UK involving Alliance UniChem. A number of other pharmaceutical companies are already setting up similar agreements.

After initial doubts, it is clear that the European supply chain is destined for change. So far, pharmaceutical manufacturers have managed to drive the changes to suit their interests, with opposition to their moves having had little effect. For pharmaceutical manufacturers this model is ideal as it allows them to exert greater control over the supply chain. Many companies believe that the current distribution system is inefficient and can be improved. With European governments limiting their profits through cost-containment measures and faced with gaps in revenue because of patent expiries, many companies believe that changing their distribution arrangements makes commercial sense. IBM has calculated that supply chain operations can cost companies more than a third of revenues, including cost of goods, inventory and assets, while consuming about half of their total headcount. In addition, pharmaceutical companies have become increasingly irritated at parallel trade involving their products and are determined to gain control over the supply chain as a result.

The power of distributors to resist change is likely to be put to the test over the next few years, as any moves by pharmaceutical manufacturers towards new models of distribution have involved private discussions with individual wholesalers. For those who become preferred partners for pharmaceutical companies, the new model guarantees business. Therefore, as these companies become enticed by deals, their willingness to oppose changes in the supply chain will diminish and only companies that have lost out will be left to put up any resistance to manufacturers. At present, associations representing wholesalers have been at the heart of the battle to defend the traditional supply chain system, but dissension in the ranks could occur as individual members become tempted by the size of the deals they can sign with manufacturers.

Related Research: Pharmaceutical Distribution in Europe: The Emergence of Direct-to-Pharmacy Supply